First Iowa Tax Day with expanded EITC

It’s Tax Day in Iowa, and many thousands of families are benefiting from the newly expanded state Earned Income Tax Credit.

Almost unnoticed as Iowans file their state income taxes today is that many thousands of families are benefiting from a newly expanded state Earned Income Tax Credit (EITC).

Iowa legislators last year passed and Governor Branstad signed an expansion of the working family credit, doubling it from 7 percent of the federal EITC to 14 percent for 2013, and bumping it to 15 percent for this year. The increase was barely mentioned by the Governor when he signed it as part of a larger package of tax changes. Yet, as we noted recently — the boost is “arguably the most important legislation he signed last year.”

arguably the most important legislation he signed last year: doubling the Earned Income Tax Credit. – See more at: http://www.iowafiscal.org/ifp-news-statement-on-governors-address/#sthash.NzN7o0IR.dpuf

New data from 2012, compiled by the Brookings Institution, sort out by legislative district the number and percentage of tax filers who benefit from the federal EITC, on which the state credit is based. We have put that information into a new Iowa Fiscal Partnership backgrounder; the two-pager is available here. In the map below, the golder and greener the district, the greater its constituents use the EITC. In the green areas, over 20 percent of filers use the EITC.

130506-EITCmap

Iowa’s Earned Income Tax Credit is an important tool in making work pay for low-income households. We have shown how a further expansion could better fill the gap between low-wage income and a basic-needs household budget, as well as improve Iowa’s tax treatment of low-wage families.

Owen-2013-57Posted by Mike Owen, Executive Director

 

Basic needs and the minimum wage

Almost 3 in 5 single-parent families in Iowa fall short of the basic needs level of income despite working at least half time – and 29 percent earn less than half the break-even level.

Basic RGBWorking full time is no guarantee that your family will be able to get by.

In fact, 1 in 6 Iowa households with a worker earned less than is needed to support a family at a very basic level. That is the finding of a report released Wednesday by the Iowa Policy Project.

The new report, part 2 of the 2014 edition of The Cost of Living in Iowa, used census data to estimate how many families earned less than is needed to pay for a no-frills basic standard of living – covering rent, food, transportation, child care, clothing and health care.

In all, at least 100,000 Iowa families earn less than the basic needs budget amount (reported in part 1 of the Cost of Living report). For those families, the average shortfall – the break-even income amount minus what they actually earned – was over $14,000.

So how would an increase in the minimum wage help such a family? A full-time wage earner at the current minimum wage of $7.25 would see an increase of almost $6,000 in annual income if the wage were raised to $10.10, as Senator Harkin and others have proposed. That’s a pretty good chunk of the average $14,000 shortfall facing these families.

The situation facing Iowa’s single-parent families is much bleaker. Almost 3 in 5 – over 27,000 families – fall short of the basic needs level of income despite working at least half time, and 29 percent earn less than half the break-even level. The average working single parent’s earnings fall over $21,000 short of what is needed. High child care costs are responsible for much of that shortfall.

How do such families get by? Some move in with relatives or find short-term strategies to survive, but many rely on work supports such as food assistance, hawk-i or Medicaid or the Affordable Care Act subsidies for health care, and the state’s Child Care Assistance program.

Wouldn’t it be better for everyone if Iowa’s low-wage employers followed the lead of Costco and others and quit using these public supports to subsidize their low wages?

An increase in the minimum wage makes all employers responsible for providing something closer to what is needed for a worker to get by in today’s world. Even a single person living alone needs in excess of $13 an hour to pay the bills.

We need to strengthen our work supports in Iowa as well. Child Care Assistance in particular needs to be reformed. We have one of the lowest eligibility ceilings in the country: At an income well below what any family needs to get by, assistance is eliminated.

And we make it difficult for the thousands of students who are parents to work part time while going to school part time to qualify for child care assistance at all. Still, employers need to do their part to make work pay.

Working full time shouldn’t leave a family in poverty.

Peter Fisher

Posted by Peter Fisher, Research Director

Why SNAP matters: Wages aren’t always enough

It’s really quite amazing what kind of arguments people will use to beat up poor people.

Mike Owen
Mike Owen

It’s really quite amazing what kind of arguments people will use to beat up poor people.

Such an example is in the comments section of a story in today’s Des Moines Register about the debate over the Supplemental Nutrition Assistance Program, or SNAP, commonly known as Food Stamps.

One writer, in playing to SNAP opponents, is pushing the idea that two full-time jobs at minimum wage lift a family above poverty according to the current administration. In that case, the writer implies, food assistance isn’t needed.

Let’s take a look at the actual numbers and what they mean. It’s not heavy lifting.

Actually the federal poverty guidelines as established have been consistent — and consistently faulty — through several administrations. They are seriously outdated and underestimate what is necessary to make ends meet.

The official poverty level for a family of four in 2013 is $23,550. Does anyone seriously believe a family of four can make it on that kind of income? Rent, food, clothing, utilities — the basics of just getting by — cost more than that in real life.

The Iowa Policy Project has looked at this issue and is constantly updating a more reliable estimate of what it costs to get by — our report, “The Cost of Living in Iowa,” is available on our website with county-by-county numbers that reflect this cost for varying family sizes.

You can quickly see how two minimum-wage jobs don’t get the job done.

A bare-bones family budget for a four-person family in the Des Moines area is — conservatively — $37,886 for one working parent. (Table below). That assumes $3,157 per month for clothing, household expenses, food, health care, rent and utilities, and transportation. If a second parent works you add more transportation costs, plus child care, which becomes the second-largest expense.

Next, figure in taxes — yes, they pay taxes, and a lot as a share of their income — and you get what it takes for a family just to get by. So, this absolutely no-frills budget, with no savings for school or a home or retirement, not even burgers at McDonald’s, rings up at $39,122 before taxes for one working parent, $58,520 for two.

120523-app-04-dm-w

And that means jobs that pay $14.63 an hour for each working parent, or $19.56 if one works.

Yet, at the $7.25 minimum wage, two jobs would pay $30,160. So much for the argument that two minimum-wage jobs per family solve poverty.

This helps to show why the meager Food Stamp benefit of about $1.25 per person per meal is such an important support for Iowa’s low-income working families. But while we’re at it, we could start talking about a higher minimum wage. Another day, perhaps.

Posted by Mike Owen, Executive Director

Iowa’s decline in job-based health insurance

When the costs of insurance keep rising, that makes it tougher on the household budget — or results in people not having insurance.

The Cedar Rapids Gazette today offered an interesting look at the question of where Iowans get their insurance. It’s less and less something that comes through employment. And when the costs of insurance keep rising, that makes it tougher on the household budget — or results in people not having insurance.

This is a trend we’ve been watching and reporting on at the Iowa Policy Project for many years, as have several good research organizations such as the Economic Policy Institute.

The Affordable Care Act offers at least a partial remedy. As health insurance exchanges are developed, affordable insurance should be more readily available. Tax credits for employers providing insurance will provide a targeted incentive to offer employees a better option than what employees might find on the individual insurance market.

Colin Gordon
Colin Gordon

Our State of Working Iowa report for 2012 offers another good look at this issue. As author Colin Gordon observes, wage stagnation, erosion of good jobs and recession have combined to batter workers, at the same time non-wage forms of compensation, health and pension benefits, also have declined. This has eroded both job quality and family financial security, and increased the need for public insurance. In Chapter 3, “The Bigger Picture,” Gordon writes that Iowa is one of 15 states, including five in the Midwest, to lose more than 10 percent of job-based coverage in a decade. He continues:

These losses reflect two overlapping trends. The first of these is costs. Health spending has slowed in recent years, but still runs well ahead of general inflation. Both premium costs … and the employee’s share of premiums have risen sharply — especially for family coverage — while wages have stagnated.

In 1999, a full-time median-wage worker in Iowa needed to work for about 10 weeks in order to pay an annual family premium; by 2011, this had swollen to nearly 25 weeks. Steep cost increases have pressed employers to drop or cut back coverage, or employees to decline it when offered. High costs may also encourage more employees to elect single coverage — counting on spousal coverage from another source and kids’ coverage through public programs. The second factor here is the shift in sectoral employment outlined above: Job losses are heaviest in sectors that have historically offered group health coverage; and job gains (or projected job gains) are strongest in sectors that don’t offer coverage.

This graph looks at the rate of employer-sponsored coverage, by industry sector, from 2002 to 2012.

job-based coverage comparison, Iowa 2002-2012

An interactive version of that graph in the online report allows the reader to toggle between those two years; the colored balloons sink on the graph in moving from 2002 to 2012, as if they all are losing air — the result of declining rates of coverage.

Good public policy could help to fill them again.

2010-mo-blogthumbPosted by Mike Owen, Assistant Director

 

Stagnant objections to minimum wage increases

While passage of an increase is uncertain, Iowans working at the minimum wage will have to get by with creativity, possibly working two jobs and needing work supports.

Heather Gibney, Research Associate
Heather Gibney

Dialogue about increasing the minimum wage is finally emerging in 2013. President Obama proposed an increase in the minimum wage to $9.00 per hour in his State of the Union address, and Senator Tom Harkin and Representative George Miller have introduced the Fair Minimum Wage Act of 2013 — which would raise the minimum wage from $7.25 an hour to $10.10. The Harkin-Miller bill would raise the wage in three steps of 95 cents before indexing it to keep up with the rising cost of living.

Iowa’s minimum wage now matches the federal. Raising it to $10.10 per hour would put nearly $6,000 more dollars in the pockets of Iowa families, and for the first time since the late 1970s a single parent with two children would be above the federal poverty level — a wage gap that we should have seen diminishing over time, but have not.

poverty vs min wage

Recognizing that the federal minimum wage is too low, 19 other states, including the District of Columbia have a higher minimum wage than the federal and 10 states annually increase their minimum to keep up with the rising cost of living. Unfortunately, attempts to raise the federal minimum wage and set automatic adjustments to keep pace with the rising cost of living have been hindered by bad economics. Beliefs that increasing the minimum wage will lead to job loss, that the majority of those benefiting would be teenagers and that it would decrease output for certain industries is the consensus among opponents, however unfounded. A recent report from the Center on Economic Policy and Research (CEPR) looked at the most influential research done on the minimum wage in the last 20 years and continuously found insignificant or no discernible effects feared — and promoted — by opponents of raises in the minimum wage.

While the passage of any of these proposals remains uncertain, Iowans working for the minimum wage will have to get by with their creativity; possibly working two jobs, relying on cash assistance and tax credits, going without those amenities that make life a little more enjoyable and hoping that one day they might join the middle class.

Posted by Heather Gibney, Research Associate

House vote: Thumbs up or thumbs down for 86,000 Iowa families?

Simply put, the House bill would undo the good work of 2009; the Senate bill would keep it, on behalf of working families and the economy.

Mike Owen
Mike Owen

Iowans would stand to lose much under a proposal this week in the U.S. House of Representatives. Citizens for Tax Justice offered a striking analysis last week highlighting the impact of the 2009 improvements in the refundable tax credits for low-income working families in Iowa.

Simply put, the House proposal would undo the good work of 2009 and increase tax inequities, while a Senate-passed bill would keep the good stuff.

One of the 2009 improvements is an expansion of the Earned Income Tax Credit (EITC), an issue we have covered extensively at IPP and the Iowa Fiscal Partnership.

Any attempts to weaken the EITC at either the state or federal level will harm low- to moderate-income working families in our state. More than 1 out of every 7 federal tax filers in Iowa claims the EITC (about 15 percent). But under H.R. 8, the tax proposal being offered by the House leadership, the EITC improvements from 2009 would be lost.

H.R. 8 also would fail to extend the improvements made in the Child Tax Credit (CTC) in 2009, and in the American Opportunity Tax Credit for higher education expenses.

It is impossible to find balance in the approach of H.R. 8, which would end these provisions above for 13 million working families with 26 million children, while extending tax cuts for 2.7 million high-income earners.

The state numbers from CTJ (full report available here):

  • 86,321 Iowa families with 190,553 kids would lose $62.5 million ($724 per family), if 2009 rules on EITC and the Per-Child Tax Credit are not extended;
  • 17,503 Iowa families with 28,179 kids would lose $32 million if the Per-Child Tax Credit earnings threshold does not remain at $3,000, compared to $13,300 as proposed by H.R. 8.
  • 59,159 Iowa families with 139,806 kids would lose $30.5 million if the two 2009 expansions of the EITC — larger credit for families with three or more children, and reducing the so-called “marriage penalty” — are not extended in 2013.

These “Making Work Pay” provisions of the tax code are almost exclusively of help to working families earning $50,000 or less at a time of stagnant wages and a difficult job market in which the Iowa economy is shifting toward lower-wage jobs.

To address our nation’s serious deficit and debt issues, a balanced approach should do nothing to increase poverty or income inequality. The Senate bill passed last week would keep the EITC and CTC improvements from 2009, and follows that principle. The bill that has emerged in the House does not.

Posted by Mike Owen, Assistant Director

Iowa Senate to families: Happy Valentine’s Day!

The increase would put Iowa into the top tier among the 22 states and the District of Columbia that offer an EITC.

Lily French
Lily French
EITC graphic
The Iowa Senate voted 48-0 on Feb. 14 to approve a significant increase in Iowa's Earned Income Tax Credit.

Today, the Iowa Senate sent a Valentine to thousands of working Iowa families, voting unanimously to approve an increase in Iowa’s Earned Income Tax Credit (EITC).

Whether the Valentine is ultimately delivered depends on the Iowa House and Governor Terry Branstad, who twice vetoed a smaller increase last year.

The Senate-passed bill would boost Iowa’s EITC, which is refundable, from 7 percent of the federal credit, to 13 percent for this year, then to 15 percent in 2013 and to 20 percent in 2014. The initial boost, to 13 percent, is expected to cost about $26 million in 2013 and $23 million each of the next three years.

No information was immediately available on the cost of moving to 15 percent and 20 percent. For comparison purposes, however, it is useful to note that Iowa gave corporations that pay no state income taxes nearly $45 million in checks last year.

In the case of those corporate subsidies, through the Research Activities Credit, there is little or no evidence of a direct benefit to Iowa’s economy nor a demonstrated need for the subsidy. The EITC, on the other hand, is shown in study after study to produce economic benefits for both local communities and working families who struggle to make ends meet in low- and moderate-wage jobs.

The increase would move Iowa from one of the lowest EITCs into the top tier among the 22 states and the District of Columbia that currently offer an EITC. Only seven states and the District of Columbia have higher credits under current law than the proposed 20 percent for Iowa. This table in a recent report by the Iowa Department of Revenue illustrates what various states offer for an EITC.

Posted by Lily French, Outreach Coordinator