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

 

A minimum wage increase for Iowa?

Many forget that in Iowa, the pressure for a minimum-wage increase has been building longer than it has nationally.

The question is an old one. Sadly.

Every few years, the pressure builds enough that we finally get a discussion about raising the minimum wage. We seem to finally be reaching that stage. The president supports a $10.10 minimum, up from the current and outdated $7.25 per hour, as Senate Labor Chair Tom Harkin of Iowa proposed last February. And it’s grown in popularity, if not in paychecks of the working poor.

A Washington Post poll finds two-thirds of Americans support a minimum wage increase, and a firm majority — 57 percent — believe federal policy should be used to reduce the wealth gap between rich and poor.

Many forget that in Iowa, the pressure has been building longer than it has nationally, as IPP’s Heather Gibney pointed out last March. Yet there’s no assurance we’ll hear much about it in a promised short session of the Iowa Legislature in 2014.

Iowa actually beat the feds to the punch in 2007, raising the state’s minimum wage to $7.25 in January 2008, a full year and a half ahead of the federal wage increase. That means six full years have eroded the buying power of those at the minimum wage — effectively, a 60-cents-per-hour wage cut.

Basic RGBThe Cedar Rapids Gazette, while not totally sold on the merits many economists see in a minimum wage increase, argued for an increase in an editorial today. Wrote the Gazette:

“The ultimate goal should be to make the minimum wage less political and more predictable, both for workers and for businesses owners charting costs. Neither should have to guess which way the political winds and whims will blow their livelihood.”

Given the lack of assurance of this being addressed in Washington, and even less of it being done in a nonpolitical manner, raising and indexing the wage to inflation as the Gazette suggests would be an effective way of ending these periodic squabbles that leave pay for the working poor to “political winds and whims.” Can our Governor and Legislature begin to look at the issue that way?

Mike OwenPosted by Mike Owen, Executive 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

Budgeting in context

The budgeting decisions of last year ought to be viewed in context.

Andrew Cannon
Andrew Cannon

Following last year’s prolonged legislative session, legislators and the governor congratulated themselves for a budget that fully funded programs and reduced reliance on what they called “one-time funds.”

It is true that state services, systems and structures were funded to a large degree through a stable source, the General Fund (where income and sales taxes are pooled). And funding levels increased generally, especially in comparison to the recession-affected budgets of FY10 and FY11, when many state services and programs took severe cuts.

But the budgeting decisions of last year ought to be viewed in context, as we do in a new report.

First, the use of “one-time funds” proved to be the right choice at the time. Because of the recession, state revenues declined precipitously, which led to a 10 percent across-the-board budget cut. One-time funds now derided by some were used precisely as intended. State “rainy day” funds, reserved for economic emergencies, and the federal Recovery Act (ARRA) combined to fill budget gaps and save services. ARRA provided billions of dollars to Iowa to finance K-12 education, higher education, and health care programs for children, the elderly, Iowans with disabilities and low-income Iowans who had no other access to health insurance.

Second, consider how funding for state services and programs compares to pre-recession funding levels. Even as revenues have bounced back, and funding for many services has stabilized, it is unclear if present levels are adequate to met needs. For instance, state funding for community colleges in FY12 will reach about $164 million, up from FY10 and FY11 levels, but still remain below pre-recession levels. At the same time, community colleges are serving more Iowans than ever, with enrollment reaching 106,000 in FY11, up from 88,000 students in FY08.

Iowa’s other public higher education system, the Board of Regents, this year is working under a 3 percent reduction in funding from FY11. Even with the governor’s proposed FY13 increase, Regents funding would still be below recession levels, to say nothing of pre-recession levels. Students pay the price, with continually increasing tuition costs.

Other programs, such as the Early Childhood Iowa initiative, which provides preschool tuition subsidies and parental education; Child Care Assistance, which helps low-income working parents cover the cost of child care; and the Family Investment Program, which helps the lowest-income families meet basic needs and prepare for employment, all have seen large cuts in funding since before the recession. Even into economic recovery, some programs are still being reduced.

Improving upon last year or the year before is good, but the long-term question asks if we are adequately funding programs to meet Iowans’ needs and to adequately invest in Iowa’s future. Judicious use of public funds is not as simple as cutting services to bring down expenses, but taking a balanced approach that assures adequate funding for services that position Iowa for the future.

Posted by Andrew Cannon, Research Associate

Expanding kids’ coverage pays dividends

Iowa is one of 23 states receiving a children’s health program bonus for its performance in 2011.

Andrew Cannon photo
Andrew Cannon

Iowa has made a huge effort in recent years to expand health insurance coverage to children. Those efforts are paying dividends to the newly covered children and their families, of course, but also to the state.

The 2009 Children’s Health Insurance Program Reauthorization Act (CHIPRA) gave states new tools to make insuring kids easier. Many of these tools meant a reduced workload for state enrollment officials, and made it easier for families to obtain coverage for their children. CHIPRA also provided cash bonuses to states that implemented the tools and excelled in enrolling children in public health insurance programs.

On Wednesday, the U.S. Department of Health and Human Services announced that Iowa is one of 23 states receiving a CHIPRA bonus for performance in 2011. Iowa is one of just five states to have implemented nearly all of the CHIPRA enrollment tools. Iowa’s $9.5 million bonus can be used to further improve enrollment and eligibility processes or to offset the cost of increased enrollment.

In addition to streamlining the  Medicaid and hawki (Healthy and Well Kids in Iowa — the state’s CHIP program) enrollment process, Iowa has also increased enrollment beyond a baseline level, further increasing the size of the bonus. In November 2011, more than 34,000 children were enrolled in hawk-i, with 248,000 enrolled in Medicaid, compared to 22,300 and 219,000, respectively, in July 2009, just months after CHIPRA passed.

Undoubtedly, the effect of thousands of Iowa parents losing their jobs and health insurance has contributed to enrollment increases. Nonetheless, the tools CHIPRA made available, as well as Iowa’s implementation of many of them, made the process of enrolling kids in public health insurance programs less onerous for many parents at a time they most needed assistance.

Posted by Andrew Cannon, Research Associate

Health premiums rise again; is there an end in sight?

Stagnant wages give health insurance premium increases more sting — and employers are requiring employees to contribute more toward premiums as they keep rising.

Andrew Cannon photo
Andrew Cannon

Anyone hoping for a reprieve from rising health insurance costs — everyone, in other words — won’t like the results of the Kaiser Family Foundation’s annual “Employer Health Benefits Survey.”

Heck, even those of us who were just hoping for premium growth near the inflation rate are disappointed.

The survey, in which more than 2,000 businesses are interviewed about the health insurance plans they offer (or in some cases, do not offer) to employees, revealed that premiums for singles increased by 8 percent while family premiums increased by 9 percent in 2011. The average premium for single coverage passed $5,400, while family coverage costs averaged $15,000.

Fifteen-thousand dollars. That’s more than the federal poverty level for a family of two. It is more, as Kaiser Family Foundation President and CEO Drew Altman noted, than the cost of a small car.

Stagnant wages give this spike even more sting. Increases in income are not offsetting these increases, and employers are requiring their employees to contribute more and more toward premiums as they continue to rise.

So, is there any end in sight? How long will premiums keep rising, and how high can they go?

It’s hard to say. Health care costs are driven by a number of factors and, as the Kaiser report illustrates, remain difficult to predict.

The health reform law, the Affordable Care Act, offers some hope for relief: Small businesses that offer health insurance to employees can receive tax credits, low- and middle-income households that do not receive insurance through an employer will be eligible for premium assistance, and the law features a number of pilot programs aimed at reducing costs.

Like any policy, however, it will require constant monitoring and occasional tweaking to meet its goals: making health care affordable and accessible for all.

Posted by Andrew Cannon, Research Associate

Report confirms need: Put consumers above insurance biz interests

The report found rural Iowans rural were more likely to skip routine doctor visits, leave prescriptions unfilled or switch to higher-deductible health plans to save on medical costs. Exchanges under health reform can better meet their needs.

We’ve all heard of a neighbor or friend’s difficulty finding or keeping quality, affordable health insurance. A recent study confirms what we all know, and shows that it is an even bigger problem than we may have realized.

Andrew Cannon photo
Andrew Cannon

The report, authored collaboratively by  Healthier Workforce Center for Excellence (HWCE) at the University of Iowa College of Public Health and two private firms, David P. Lind & Associates and the State Public Policy Group — found that while all Iowans are feeling the pinch of growing insurance costs, rural Iowans were more likely to skip routine visits to the doctor, not fill a prescription or cut back on their dosage, or switch to higher-deductible health plans or those with fewer benefits to save on medical costs.

The report notes that “unless substantial changes are made in the way Iowans receive health insurance and health care, their financial future is untenable — especially for small employers and those living and working in rural counties.”

Iowa’s lawmakers have the opportunity to make those substantial changes, as they create the structure and rules to govern new health insurance marketplaces (also known as an exchange; see our one-page backgrounder for more information) created by the new health reform law.

The Affordable Care Act allows each state to create and run a health insurance marketplace. This will stop insurers from denying coverage and varying premium price on anything other than age and smoking status. Additionally, each plan sold in the exchange will offer a complete list of benefits mandated by the law. Consumers earning below 400 percent of the federal poverty rate ($89,400 for a family of four in 2011) will receive sliding scale premium assistance through advanced federal tax credits. Small businesses, the self-employed and families who do not receive insurance through employment will be immediately eligible in 2014 to purchase insurance through these marketplaces.

However, for consumers to fully benefit from the health law, state policymakers must act before January 1, 2013, (though the marketplaces will not be operational until 2014) and do so in the interest of consumers. The most recent legislative session saw two exchange or marketplace proposals, both of which ultimately failed; one contained strong consumer protections, while the other sacrificed the needs of Iowa health consumers to the insurance broker industry. That leaves Iowa legislators with one more complete legislative session to create a strong marketplace that will benefit Iowa consumers.

All Iowans, and especially owners and employees of small businesses and those in rural areas, need Iowa’s lawmakers to put health insurance needs above the interests of the insurance companies and insurance brokers.

Families, farmers subsidize property tax break for business

Rather than having big businesses contribute to our cities and counties, individuals and families would pick up an even larger portion of our city and county governments’ tab.

Andrew Cannon photo
Andrew Cannon

Any way you slice it, the commercial and industrial property tax cut in the amended House Omnibus Budget bill (HF697), shifts tax responsibilities to individuals and families. Apart from being unnecessary, as Iowa’s tax rates are average, it violates the principles of shared investment and contribution.

Amendment H-1735 to HF697 rolls back commercial and industrial property tax assessments by 25 percentage points over five years.

To attempt to placate concerns of cities and counties, legislators created a “commercial and industrial property tax replacement fund.” Each year, the Legislature would draw from the state’s General Fund to provide cities and counties with money to make up the revenue they will lose in the property tax rollback.

The plan has serious flaws as the Iowa Fiscal Partnership has noted.

First, it’s not at all clear that the funds promised would adequately replace the revenue that cities and counties would lose in the C/I property tax cut. And of course, state aid to local governments is never guaranteed – the experience of other states suggests that aid to local governments would fluctuate considerably as states weather recessions and fiscal challenges.

If the replacement funds turn out to be insufficient or if the state doesn’t fully deliver on its promises, cities and counties would have to find other ways to raise the revenue they need. That could mean increased property taxes for residential and agricultural landowners — or lost services.

Second, even if the replacement fund were to adequately replace lost revenues, individuals’ and families’ share of local property tax would be greater. And, with replacement fund monies coming from the state’s General Fund, families would subsidize that disproportionately because the individual income tax is the largest single revenue stream for the General Fund, comprising nearly half of its revenues.

Rather than having big businesses contribute to our cities and counties, individuals and families would pick up an even larger portion of our city and county governments’ tab.

Big business would be getting a good deal, at the expense of Iowa families and farmers.

Posted by Andrew Cannon, Research Associate

The continued search for balance in Iowa

Any tax policy changes in the final days of the legislative session should improve the revenue side of the ledger after devastating budget cuts of recent years.

IFP Statement on Governor’s Actions, Final Days of Legislature

Iowa Fiscal Partnership

As Iowa lawmakers head into the final stages of this legislative session, Iowans must remember our state’s fundamental fiscal challenges. We need a balanced approach that assures fiscal prudence and adequate revenues to meet our citizens’ needs. This is no time to be cutting taxes. We cannot afford it.

The Governor’s approval last week of a “Taxpayers Trust Fund” only makes our challenges greater. The legislation creates a $60 million pool to pay for tax cuts. We fear it might become a slush fund for big giveaways to corporations and the wealthy.

In the same legislation, the Governor item-vetoed two other tax policy provisions — one, a wasteful business giveaway known as “bonus depreciation,” and the other, a much-needed boost in the Earned Income Tax Credit for low- and moderate-income working families. In any comprehensive tax reform, boosting the EITC would be a good start.

In his veto letter, the Governor acknowledged that a state bonus depreciation break has little or no stimulative effect on the economy. This is a welcome perspective from the Governor — and lawmakers should recognize as well that many proposed tax giveaways for business suffer from the same deficiency.

At the same time, they should recognize the state EITC does have a stimulative effect on the economy. Working families who earn little in their jobs would see their taxes cut. Their spending churns over in local stores and activities and also helps the economy.

Any tax policy changes in the final days of the legislative session should improve the revenue side of the ledger after devastating budget cuts of recent years. Tax changes should improve tax fairness while helping the economy. All proposals on the table to slash corporate income taxes and individual taxes for the very wealthy are unwise.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines.

New York Times study confirms IPP report

Despite the different methodologies and the different datasets, the numbers tell the same story: State government workers with a college degree or more — over two-thirds of Iowa’s public sector workforce — are paid less than college-educated private sector workers.

Andrew Cannon photo
Andrew Cannon

The New York Times story comparing the earnings of private-sector employees with state government employees confirms what the Iowa Policy Project found in a new report the same week: When you control for education, most state government employees are paid less than their private-sector peers.

Despite the similar findings, our study and the Times study used different approaches.

First, the Times study was more limited in scope, looking only at state government workers, while our study looked at state and local government employees. This matters because local government workers, as our analysis showed, are compensated even more poorly than state government workers.

Our study also accounted for factors that are known to affect compensation beyond education, such as work experience, firm size, sex, race, and annual hours worked. In addition, our study attempted to account for the effect of the public sector’s more generous benefits packages. The Times story looked only at wages.

Second, the Times used slightly different methodology and a different data source than we used. The difference in categorizing education was the most important difference in methodology between our report and the Times’ story. Workers with associate’s, bachelor’s, master’s, professional and doctoral degrees were all lumped together in the Times report as one group, and workers with some college but no degree, a high school diploma, or workers with less than a high school education as the second category.

Categorizing workers that way distorts the picture. It inflates wages in the public sector, as a much larger proportion of state government workers have master’s, professional and doctoral degrees, and a smaller proportion of state workers have an associate’s degree, than in the private sector. Figure 1 in our analysis demonstrates the key differences in educational distribution among the sectors.

Our study also looked into each educational category, comparing, for instance, public-sector workers with a bachelor’s degree with private-sector workers with a bachelor’s degree. Thus the table that accompanied the Times story is not comparable to the results in Table 1 of our study.

Using the data set with which I conducted our study — the Census Bureau’s Current Population Survey — I compared median pay between the two sectors across the broad educational categories used in the Times story.

Despite the different methodologies and the different datasets, the numbers tell the same story: State government workers with a college degree or more — over two-thirds of Iowa’s public sector workforce — are paid less than college-educated private sector workers.

The Times study found that college-educated state employees earn 6.9 percent less than college-educated private-sector workers in Iowa. The analysis I conducted with our dataset was virtually indistinguishable, finding a 6.1 percent differential.

Among less-educated workers, our findings confirmed the Times, though the 19 percent state-government advantage reported by the Times outstripped the advantage in our data set by 8 percentage points.

The Times has made a valuable contribution to the discussion on public-sector and private-sector compensation. In addition to broadening the discussion by virtue of its vast readership, the Times also independently confirmed the analysis by IPP and the several different statelevel analyses conducted by the Economic Policy Institute. When the educational differences between the private- and public-sectors are accounted for, it is clear that most public employees could be making more money in the private sector.

Posted by Andrew Cannon, Research Associate