Iowa Fiscal Partnership / Blog
One of many measures showing Iowa to be low or in the middle of the pack on business taxes is a study by the business consulting firm Anderson Economic Group. In its 2016 business tax rankings, Anderson ranked Iowa business taxes fourth-lowest.
In that analysis, Anderson looked at 11 taxes on business, and examined more than tax collections, but also how taxes paid by business compared to income available to pay the tax. Anderson said it used “taxes paid as share of profits, as this measure directly compares taxes paid to business income available to pay the tax.”
In fact, by the Anderson measure, Iowa ranks below all of its regional neighbors except South Dakota, which is lower only by one-tenth of a percentage point.
This finding is not unusual despite claims from the business lobby about Iowa taxes on business, as we have shown before. The latest examination by a widely known business accounting firm, Ernst & Young, puts Iowa state and local business taxes in the middle of the pack and below the national average, at 4.5 percent of private-sector GDP.
Editor’s Note: The Iowa House of Representatives now denies the ability of lawmakers to use visual aids in debate on the floor. To help Iowans visualize what kinds of graphics might be useful in these debates to illustrate facts, on several days this session we are offering examples. Here is today’s graphic, to illustrate where Iowa rates vs. other states, by responsible measures, on business taxes.
As part of Moral Mondays at the Iowa State Capitol, Iowa advocates and lawmakers this week heard a cautionary tale from Annie McKay of Kansas Action for Children and Duane Goossen of the Kansas Center for Economic Growth.
At a time when Iowa lawmakers are considering significant tax cuts, McKay and Goossen, who analyze and promote child policies and conduct analysis of the Kansas state budget, traveled to Des Moines to outline the effects of what has become known as the “Kansas experiment,” a set of draconian tax cuts passed in 2012.
At that time, Goossen recounted, Gov. Sam Brownback promised the cuts would bring an economic boom to the state, with rising employment and personal income. People would move to Kansas. It would be, the governor said, “like a shot of adrenaline into the heart of Kansas economy.”
But, five years on, the promised economic boom has not arrived.
“Business tax cuts were supposed to be magic, they were supposed to spur job growth — and they didn’t,” said Goossen, a former Republican state legislator and state budget director under three governors.
In fact, since 2012 job growth in Kansas has lagged behind its Midwestern neighbors, including Iowa. The state has, however, seen years of revenue shortfalls and damaging budget cuts, eroding critical public services like K-12 and higher education, human services, public safety and highway construction.
In this period, the state has depleted its budget reserves, robbed its highway fund to shore up its general fund, borrowed money and deferred payments in order to balance the budget. Kansas has experienced three credit downgrades. Lawmakers have raised the sales tax twice and repealed tax credits that helped low-income families make ends meet. (In fact, the bottom 40 percent of Kansans actually pays more in taxes today than before the 2012 tax cuts went into effect.)
These actions have real impacts. Last year, Kansas saw the third biggest drop in child well-being among states as documented by Kids Count. Its 3rd grade reading proficiency ranking fell from 13th to 30th.
“What we did in Kansas – there is no proof behind it,” McKay said.
Iowans today are better positioned to stand up to damaging tax cuts than their Kansas counterparts were five years ago, McKay said. “We did not that have same people power in 2012.” She advised Iowa advocates to make crystal clear how all the issues currently generating widespread interest — education, health and water quality among them — are linked to the state’s ability to raise adequate revenue.
“You are ahead of where we were,” she said. “You have the opportunity to not be like Kansas.”
McKay and Goossen’s talk Feb. 13 at the Iowa State Capitol was coordinated by the Iowa Fiscal Partnership (a joint effort of CFPC and the Iowa Policy Project) and supported by the Center on Budget and Policy Priorities. CFPC, through its Every Child Counts initiative, is one of more than two dozen sponsors of Moral Mondays, a weekly gathering during session to highlight issues that advance Iowa values like equality, fairness and justice.
Editor’s Note: The Iowa House of Representatives voted Monday to deny the ability of lawmakers to use visual aids in debate on the floor. To help Iowans visualize what kinds of graphics might be useful in these debates to illustrate facts, we will offer examples. Here is today’s graphic, to illustrate what could be expected to happen in Iowa if Congress repeals the Affordable Care Act.
Repealing the Affordable Care Act (ACA) without an adequate replacement, as Congress and the incoming Trump administration appear poised to do, jeopardizes the health care coverage and economic well-being of the most vulnerable Iowans. About 230,000 fewer Iowans would have health coverage in 2019 if the law is repealed, including 25,000 children.
In fact, repeal of the ACA could leave tens of thousands of adults uninsured who actually had insurance prior to the ACA. Some 69,000 Iowans covered by an Iowa program, IowaCare, became part of the Iowa Health and Wellness Program with the advent of the ACA, while even more Iowans had insurance with the help of ACA subsidies.
Repeal leaves all three of those programs gone — IowaCare, Iowa Health and Wellness, and the ACA subsidies. Thus, fewer will have insurance than in 2013, prior to the ACA, and low-income Iowans will be worse off. This is an issue that state legislators may be left to address with no help from the U.S. Congress, but is not getting attention at the Iowa Statehouse.
For more information, see this Iowa Fiscal Partnership policy brief by Iowa Policy Project Research Director Peter Fisher.
Editor’s Note: The Iowa House of Representatives voted Monday to deny the ability of lawmakers to use visual aids in debate on the floor. To help Iowans visualize what kinds of graphics might be useful in these debates to illustrate facts, we will offer examples. Here is today’s graphic, to illustrate state trends in spending on business tax credits.
As the Iowa Policy Project and Iowa Fiscal Partnership have pointed out before, Iowa’s perceived budget shortfalls are largely self-inflicted. Iowa Department of Revenue reports provide a lot of data about tax credits, particularly in reports that are prepared for use by the Revenue Estimating Conference, which determines what revenue lawmakers have available to spend. These reports show the cost of those credits, which are also known as “tax expenditures,” because they effectively spend money through the tax code — revenues that otherwise would be available for fund schools and other public services.
Growth in tax-credit spending has erupted in Iowa over the last decade, tripling from $75 million in FY2007 to $237 million last year. They are projected by the Department of Revenue to reach $279 million in the current fiscal year, and to nearly $300 million in just four years.
For more information about Iowa spending on tax credits, see this page on the Iowa Fiscal Partnership website.
Governor Branstad and Lieutenant Governor Reynolds are discussing a potential task force to examine whether to replace the IPERS defined benefit pension plan with a defined contribution plan, like 401(k) plans.
The Iowa Policy Project, which has researched this issue already, today released this statement:
The governor’s proposed task force on public pensions is unnecessary. The evidence is clear that a defined contribution plan is inferior to a defined benefit plan in the fundamental purpose of a pension: to assure a secure retirement for an employee. The IPERS law also clearly states its purpose of reducing turnover and attracting high-quality public workers.
Therefore, any task force should be charged with those two fundamental tasks: (1) assuring a secure retirement for public employees, and (2) enhancing the ability of the state to attract and maintain good workers. Public employment should not be reduced to temp work.
It is noteworthy that the assurances offered current employees — which include the Governor, Lieutenant Governor and state legislators — pit current employees against future employees. It would replace a secure retirement with one at the mercy of the ups and downs of the stock market.
IPERS is strong — stronger than most such systems and stronger than it was after ill-advised underfunding and a recession. As long as legislators do not take the easy way out and choose to underfund this fundamental responsibility again, there is no reason to consider a change. A fair task force will discover this.
The effort to change this stable and secure pension plan for public employees is driven by political arguments — not economic or fiscal arguments. To better understand the issues and the political spin that is clouding them, see also these newspaper guest opinion pieces:
“Alarmist rhetoric sells Iowa pension plan short,” by David Osterberg in the Cedar Rapids Gazette, December 2013
“Strengthen, don’t break, Iowa pension plans,” by Peter Fisher in the Iowa City Press-Citizen, March 2014
Posted by Mike Owen, Executive Director of the Iowa Policy Project
It is reassuring that the Governor chose not to grab the tax-cut mantle so strongly on his way out the door. But he is missing an opportunity to rein in or even reverse Iowa’s runaway spending on tax credits, which has contributed to unmet needs in our state.
It’s not just four counties that benefit from the higher local minimum wages that go into effect this year. Those four counties — Polk, Linn, Johnson and Wapello — account for a third of all private-sector jobs in the state. And a large number of people holding those jobs live in neighboring counties.
Polk, Linn and Johnson counties are the hubs of metropolitan areas, surrounded by counties where a sizeable share of the workforce commutes to the hub. Those commuters earn higher wages thanks to the county supervisors in the three counties. And they come home to spend those higher wages at local gas stations, restaurants, grocery stores and other retail shops. They hire local plumbers and builders and electricians. In all, at least 12 counties in addition to Polk, Linn and Johnson will see a substantial increase in resident incomes and local purchases as a result of those three county minimum wages.
The map below shows the percentage of lower wage workers in each suburban county who are employed in the hub county with the higher minimum wage. Clearly, any action by the Iowa Legislature to roll back county minimum wages would harm the workers and the local economies in many of the state’s most populous counties.
 Lower wage is defined as earnings of $3,333 per month or less. Restricting it to those earning $1,250 or less results in very similar percentages; the lower figure, however, would represent a wage of even less than the current minimum for someone working full time, whereas the county minimums when fully phased in will benefit all those earning under $10.10 (Johnson) to $10.75 (Polk), and some workers above those levels. These earnings cutoffs were the only ones provided in the Census data.
Tax-cutters are in hog heaven in Iowa these days. They soon assume the levers of power at the State Capitol and they are planning to use them — no matter the consequences.
But if they truly believed their own mantra about the economic glories of low taxes, they would be shouting “Mission Accomplished” from the top of the Capitol dome. For all their talk of making Iowa “competitive,” they would realize we are already there, and have been for many, many years.
Once again, the national accounting firm Ernst & Young has examined the range of state and local taxes affecting businesses in every state plus Washington, D.C., and found Iowa is in the same place it always lands — the middle of the pack.
Twenty-three states and D.C. tax business more heavily than Iowa, which is tied for 25th with six other states including neighboring Minnesota. Even South Dakota, despite a low-tax image trumpeted by western Iowa politicians, is slightly higher than Iowa.
That is because responsible tax policy demands a comprehensive look at the impact of all pieces of the tax structure, as Ernst & Young does. Cherry picking only one tax that appears high — appears being the key word because this can be complex — ignores other offsets in the tax code.
Yet, the post-election rhetoric has been a lot about tax cuts — tax cuts we cannot afford.
To the extent state and local taxes matter in business decisions — and there is considerable evidence that they do not, despite the political spin — Iowa already is well-situated. In other words, the concept of “competitiveness” can be overstated easily. A tax structure would have to be markedly different from others, producing high-tax results that we certainly don’t see in Iowa, to make a difference in business expansion and location decisions.
As we pointed out in 2014, Iowa is a low-tax state. This remains so. Why aren’t our elected officials promoting that if it is so important to them?
Having already implemented what the Governor promoted as the largest tax cut in Iowa history with massive property tax giveaways benefiting big-box retailers in 2013, and recognizing state revenues are coming in more slowly than expected, our leaders need to take a deep breath.
We cannot afford new tax cuts for business. For stronger economic growth, let’s turn the page and look at things that matter.
Posted by Mike Owen, Executive Director of the Iowa Policy Project
With big policy decisions ahead on the future of Medicaid, not only in Iowa but in Washington with a new administration, it is reasonable to wonder if Governor Terry Branstad’s go-it-alone Medicaid privatization is only the tip of the iceberg — and how big the iceberg may be.
A block-grant approach means states would be allotted a share of funds for Medicaid, and when it is gone, that’s it — services would be cut. In that scenario, the decisions would be made in the states. As noted by Edwin Park of the Center on Budget and Policy Priorities:
Maybe someone can provide the campaign literature from the 2016 legislative races that illustrates successful candidates’ thoughts on whose coverage would be the first to go. Who gets cut off? Someone will have to decide that if we go to a block-grant program.
Is that what these new legislators signed up to do when they put their names on the ballot? But they could check in with Senator Grassley and Senator Ernst to find out if Iowa Statehouse job descriptions might change in the months ahead.