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IFP News: Income Down, Poverty Up Since ’07

Iowans in slow recovery from Great Recession

PDF of this release

IOWA CITY, Iowa — More Iowans remained in poverty three years after the recession, new data from the Census Bureau showed Thursday.

The American Community Survey (ACS) indicated 12.7 percent of Iowans — about 377,500 people — were in poverty in 2012, up from 11 percent in 2007, the year the last recession started.

“These are the signs we have been seeing across the board in our research,” said David Osterberg, founding director of the Iowa Policy Project, part of the Iowa Fiscal Partnership. “Whether you’re looking at jobs, or income, or poverty, or food insecurity, we simply have not caught up with where we were before the Great Recession.”

Other key points for Iowa from the release of 2012 ACS data:

•       Iowa’s poverty rate of 12.7 percent compared with 11 percent in 2007 and 9.7 percent in 2001. The change from 2011 — a drop of 0.1 of a percentage point — was not statistically significant.

•       Child poverty was 15.6 percent in 2012 (about 110,200 children), up from 13.1 percent in 2007 and 12 percent in 2001.

•       Median income was $50,957 in 2012, changing little from 2001 in inflation-adjusted dollars, but it dropped from $52,371 in 2007.

“Public policy needs to give people the tools to lift themselves out of poverty, and at the same time boost the economy,” said Charles Bruner, executive director of the Child & Family Policy Center, also part of the Iowa Fiscal Partnership. “We have those kinds of tools in place — such as SNAP, or Food Stamps — but many of those same tools are under assault in Congress.”

In the U.S. House, lawmakers Thursday debated legislation that would cut SNAP benefits to an estimated 3.8 million beneficiaries.

“Look at these numbers today,” Osterberg said. “How can we see over 100,000 kids in Iowa in poverty and not realize this is a problem that needs to be addressed?”

Reports from the Iowa Fiscal Partnership are at www.iowafiscal.org.

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Note: A simple comparison of the Current Population Survey and the American Community Survey is available at http://www.census.gov/hhes/www/poverty/about/datasources/factsheet.html.

 

IFP News: Food Insecurity Trends Rising in Iowa

Posted September 4th, 2013 to Economic Security, Food Assistance, IFP in the News

As Farm Bill Idles, Food Needs Challenge 13 Percent of Iowa Households

PDF of this release (2 pages)

IOWA CITY, Iowa (Sept. 4, 2013) — While Congress fails to resolve a stalemate on food assistance and the Farm Bill, long-term trends show hunger rising in Iowa.

food insecurity definitionAn annual report from the U.S. Department of Agriculture on family food insecurity found a larger share of Iowa households had trouble putting food on the table, on average, in 2010-12 than a decade earlier.

Iowa was one of 39 states where the share of households with food insecurity rose from 2000-02 to the most recent three-year period, 2010-12. In Iowa, the share rose from 9.1 percent to 12.6 percent.

Furthermore, Iowa households in more severe conditions — “very low food security” — also increased from 2000-02 to 2010-12, from 2.8 percent to 4.8 percent.

The same report, however, found that Iowa did not show a statistically higher proportion of families having food insecurity issues, on average, in 2010-12 than in 2007-09.

“While the challenge to put adequate food on the table throughout the year remains less a problem in Iowa than the national average, it has become a greater challenge within our state than it used to be,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project, part of the Iowa Fiscal Partnership.

“This is a glimpse of the real-life consequences for Iowa families if SNAP opponents get their way in a new Farm Bill. In short, clearly we are still in recovery from the 2007 recession.

“When the number of Iowans in dire situations already is on the rise despite improvements in SNAP through the years, lawmakers need to be aware of the consequences.”

The report found an estimated 14.5 percent of American households were food insecure at least some time during the year in 2012, meaning they lacked access to enough food for an active, healthy life for all household members.

The national change from 14.9 percent in 2011 is not considered statistically significant, and the prevalence of very low food security was unchanged at 5.7 percent, the report noted. USDA uses one-year Census data for national comparisons to previous years, but for state-level comparisons, the data are presented in three-year averages for greater reliability.

For Iowa and many states, however, the situation was different.

According to the latest report:

—  Food insecurity in Iowa rose from 9.1 percent in 2000-02 to 11.5 percent in 2007-09, and 12.6 percent in 2010-12. The change from 2007-09 to 2010-12 was not considered statistically significant, while the longer-term increase of 3.5 percentage points was considered a statistically significant change.[i]

—  Very low food security in Iowa rose from 2.8 percent in 2000-02 to 5 percent in 2007-09, then dipped to 4.8 percent in 2010-12. The small decline from 2007-09 was not considered statistically significant, while the longer-term increase was considered statistically significant.

—  The 2010-12 Iowa averages are significantly below the U.S. averages (14.7 percent for food insecurity, 5.6 percent for very low food security).

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


[i] Alisha Coleman-Jensen, Mark Nord and Anita Singh, U.S. Department of Agriculture, Economic Research Service, “Household Food Security in the United States in 2012,” Economic Research Report No. 155, September 2013. http://www.ers.usda.gov/publications/err-economic-research-report/err155.aspx – .UidxtbwpfTw. Also see Center on Budget and Policy Priorities, “Statement by Stacy Dean, Vice President, Food Assistance Policy, On the New USDA Report on ‘Food Insecurity.’” September 4, 2013. http://www.cbpp.org/cms/index.cfm?fa=view&id=4007

lacked access to enough food for an active, healthy life for all household members.

 

How the EITC Hits Home

1 in 6 Iowa Working Households Value Credit; $412 Million to Economy

Backgrounder (2-pg PDF) (Higher resolution PDF) May 14, 2013

Iowa lawmakers have considered an expansion of the state’s Earned Income Tax Credit for low- and moderate-income working families. Using an analysis from the Brookings Institution to illustrate where Iowans claim the credit, our map below breaks down the percentage of federal tax filers claiming the EITC in each Iowa House district. Brookings analysis (Table 1) shows 15 percent of Iowa federal income tax filers in 2010 benefited from the credit — about 206,000 households.

Figure 1. Use of the Federal EITC, by Iowa State House District, 2010 (Current District Lines)EITC map - Iowa

 

Table 1. Over 15 Percent of Iowans Filing for Federal EITC
By Iowa Senate and House Districts, 2010table - district by district EITC

IFP News: Who Pays Taxes in Iowa?

Posted January 30th, 2013 to Taxes, Who Pays Taxes in Iowa?

Making Wealth Pay: Richest Iowans Pay Lower Tax Rate

Study Shows Poorest or Middle-Income Families Pay Larger Share of Income;
New Report ‘Illustrates Unfairness’ of Proposed $750 Income Tax Credit

Download this news release — 2-page PDF and Iowa fact sheet 2-page PDF

IOWA CITY, Iowa (Jan. 30, 2013) — A new national report shows Iowa taxes — like those in most states — are much greater as a share of income from middle- and low-income families than from wealthy families.

The report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, by the Washington-based Institute on Taxation and Economic Policy (ITEP), shows the effect of sales taxes and property taxes on lower-income households tilts Iowa’s overall tax system so the poorest pay the highest percentage in taxes.

“The latest findings confirm a nagging problem of inequity in Iowa’s overall tax system,” said David Osterberg, executive director of the nonpartisan Iowa Policy Project, part of the Iowa Fiscal Partnership (IFP).

“In fact, the ITEP report illustrates the unfairness of a new proposal at the State Capitol to give away Iowa’s surplus in $750 chunks through income-tax credits. Many Iowans who pay most of their taxes on sales and property would not benefit from the proposed income-tax credit.”

According to the ITEP report, the average effective overall tax rate for the non-elderly taxpayers in the bottom 20 percent is 10.9 percent. The rate drops steadily to a 6 percent level for the top 1 percent of taxpayers. In the middle 20 percent, the level is 10.1 percent.

The report — available at www.whopays.org and www.iowafiscal.org — separately examines the share of income paid at various income levels for sales and excise taxes, personal income tax and property tax. It also calculates the reduction, a tax offset going mainly for higher-income families, caused by the ability to deduct state and local taxes from federal income tax. In addition, Iowa state income-tax payers may deduct their federal income taxes paid, again a device that disproportionately benefits higher-income earners.

 “The state’s present surplus is a poor excuse to give one more break to the wealthiest — at the expense of fairness for lower-income earners, and at the expense of critical public services that need to be funded,” said Charles Bruner, executive director of the Child & Family Policy Center, also part of IFP.

For low-income families (earning below $21,000 per year), sales and excise taxes take a 6.4 percent share of family income, compared with 0.9 percent in the top 1 percent (income of $312,000 and higher).

“We know that governors nationwide are promising to cut or eliminate taxes, but the question is who’s going to pay for it,” said Matthew Gardner, executive director of ITEP and an author of the study. “There’s a good chance it’s the so-called takers who spend so much on necessities that they pay an effective tax rate of 10 or more percent, due largely to sales and property taxes. In too many states, these are the people being asked to make up the revenues lost to income tax cuts that overwhelmingly benefit the wealthiest taxpayers.”

State consumption taxes (mainly sales taxes) are particularly regressive — meaning they take a greater share of income from people at low incomes than people at high incomes. Overall, those rates average 7 percent for the poor, 4.6 percent for middle incomes and a 0.9 percent for the wealthiest taxpayers nationwide.

Gardner noted that in some states, there are efforts to cut or eliminate the income tax, and that of the 10 most regressive tax states, four do not have any taxes on personal income and one applies it only to interest and dividends. The other five have a personal income tax that is flat or virtually flat across all income groups. 

“Cutting the income tax and relying on sales taxes to make up the lost revenues is the surest way to make an already upside down tax system even more so,” Gardner stated.

The data in Who Pays? also demonstrates that states commended as “low tax” are often high-tax states for low- and middle- income families. 

“When you hear people brag about their low tax state, you have to ask them, low tax for whom?” Gardner said.

The fourth edition of Who Pays? measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia.  The report is available online at www.whopays.org.

Low-Income Iowans Pay Greater Share of Income in State/Local Tax Than Higher Income Iowans

who pays graph

who pays table

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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. Reports are at www.iowafiscal.org.

The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) nonprofit, nonpartisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.

 

Health Reform: Right balance for small business

Posted July 10th, 2010 to Health, Work Supports

In Iowa, Targeted Tax Credits Offer Business Benefits, Employees Health Access

PDF
News Release

By Andrew Cannon

A largely silent but very active movement within state and federal agencies is preparing for the full implementation of the Patient Protection and Affordable Care Act (PPACA). Though the new health reform law does not fully go into effect until 2014, dozens of agencies within the federal government are complying with the law’s provisions to ensure that the law’s implementation has the maximum impact of making insurance affordable to all.

One provision that takes immediate effect helps small businesses provide health insurance to their employees. The PPACA provides small businesses that pay at least half of their employees’ health insurance premium with tax credits of up to 35 percent of the premium cost.

Background

Small businesses and their employees have been disproportionately hurt by the rapid increase in health insurance premiums. Larger firms are able to spread the risk of insuring their employees across a larger pool. In addition, their size affords them bargaining power that smaller businesses lack.

A 2006 study found that the smallest firms pay considerably higher health insurance premiums than large firms. Premiums for firms with nine or fewer employees are 18 percent higher than those of large firms (those with 1,000 or more employees), and firms with 10 to 24 employees pay 10 percent more in premiums than large firms. [1]

In addition, premiums have risen significantly for all firms over the past 10 years. In 2000, Iowa companies reported an average premium of $6,487 for a family health insurance plan. By 2008, the average family health insurance plan in Iowa had risen by more than $4,400. [2]

Rising premiums have made health insurance a benefit that many smaller employers can simply no longer afford to offer employees. While larger firms have continued to offer health insurance to employees at an unchanged rate since 2000, the percentage of smaller firms offering health insurance benefits has declined. From 2000 to 2008, there was a drop of three to four percentage points in firms with 100 or fewer employees that offered health insurance. [3]

As a result, employees of small firms are less likely to get their health insurance through an employer. In 2008, about two-thirds of Iowa firms with between 10 and 24 employees offered health insurance to employees and only a third of Iowa firms with 10 or fewer employees offered health insurance. [4] By comparison, more than 91 percent of Iowa firms with 25 or more employees offered health insurance to their employees. [5]

Health Insurance, Small Businesses and the PPACA

The PPACA aims to reduce this disparity between 2010 and 2013 by offering highly targeted tax credits to small businesses that pay for at least half of their employees’ health insurance premiums.

Eligibility for the full credit of 35 percent of an employer’s contribution to employee health insurance is limited by both the number of full-time equivalent employees and the average taxable wages the employer pays.* Firms with 10 or fewer full-time equivalent employees with an average wage per employee of $25,000 or less are eligible for the full credit. Firms with more than 10 employees or average wages higher than $25,000 are eligible for tax credits on a declining scale. At 25 employees, or an average wage of $50,000, credit eligibility disappears. Table 1 shows the eligibility scale for the small business tax credits.

Table 1-HCR credits For example, if a small business that qualifies for the maximum credit offers its employees an individual health insurance plan with an average premium of $4,500, and pays $2,500 of the cost, the employer would receive a tax credit of $875 per full-time employee.

A firm with eight full-time employees and eight part-time employees who work 20 hours a week, for instance, would not be eligible for the full 35 percent credit, even if the average wage was $25,000 or less. Under the PPACA tax credit guidelines, the example firm has the equivalent of 12 full-time employees. Such a firm would be eligible for a 30 percent credit. [6]

In 2014, when full implementation begins with the creation of state-based health insurance exchanges, or marketplaces for individuals and small businesses to purchase insurance, small businesses will be eligible for a maximum credit of 50 percent of the employer’s contribution to the premium.**

Iowa Small Businesses

Firms with 20 or fewer employees account for over 85 percent of Iowa’s private establishments. [7] Over 56,400 small businesses in Iowa have 20 or fewer employees. Depending on the average wage within the firm, these businesses may be eligible for the PPACA health insurance tax credit.

These targeted tax credits will provide a significant benefit to Iowa’s qualifying small businesses that already pay the majority of costs for health coverage for their workers. There also may be some impact upon firms that have not been able to provide employees with health insurance because of its cost and now decide to do so. Even with the federal incentive, however, health insurance costs are likely to weigh against many small employers picking up coverage they do not now provide. The experience with state small business insurance incentive programs is that they generally serve a very small share of the businesses that are potentially eligible, with particular challenges to reaching those predominantly employing lower-wage employees.

Still, employers that do offer health coverage may benefit not only from the federal funding, but also from having a more stable workforce. Nearly three-quarters of workers in a national survey stated that employer-sponsored health insurance was a major factor in their decision to take a job. [8] Similarly, about 80 percent business executives in one national survey described the provision of health insurance benefits as “extremely” or “very important” in job retention. [9]

Overall, the provision of this credit will make health insurance provision by employers less costly. Some additional small business employees, as a result of the tax credit, may have health insurance offered by their employers, and small businesses currently offering coverage will be less likely to drop that coverage. Nearly 60 percent of Iowa’s uninsured population is employed,[10] so the credit will have some impact on the number of uninsured workers within Iowa.

Iowa’s small businesses and their employees stand to gain in obtaining affordable health insurance through this and other provisions in PPACA. Though the major provisions of health reform do not take effect until 2014, premium tax credits already have taken effect.

* Nonprofit organizations that meet the payroll and employee requirements will receive a 25 percent non-refundable credit, which can be used to reduce the organizations’ income and Medicare tax withholdings.
** Beginning in 2014, nonprofit organizations meeting the payroll and employee requirements will receive a 35 percent nonrefundable tax credit, again reducing the organizations’ income and Medicare tax withholdings.
 
Andrew Cannon is a research associate for the Iowa Policy Project (IPP), focusing on fiscal policy and economic opportunity issues including health reform. The Iowa Fiscal Partnership is a joint initiative of IPP and the Child & Family Policy Center, two nonprofit, nonpartisan Iowa-based organizations that cooperate in analysis of tax policy and budget issues facing Iowans. Find Iowa Fiscal Partnership reports at www.iowafiscal.org.
[1] Jon Gable, Roland McDevitt, Laura Gandolfo, et. al. “Generosity and Adjusted Premiums in Job-Based Insurance: Hawaii is Up, Wyoming is Down,” Health Affairs. May/June 2006.
[2] Agency for Healthcare Research and Quality. Average total family premium in dollars per enrolled employee at private-sector establishments that offer health insurance by firm size and state  (Table II.D.1), years 1996-2008. Medical Expenditure Panel Survey Insurance Component Tables. Generated using MEPSnet/IC. Accessed June 15, 2010. <http://www.meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC.jsp>.
[3] AHRQ. Percent of private-sector establishments that offer health insurance by firm size and selected characteristics (Table I.A.2), years 1996-2008.
[4] AHRQ. Percent of private-sector establishments that offer health insurance by firm size and state (Table II.A.2), years 1996-2008.
[5] AHRQ MEPS, Table II.A.2.
[6] Chris L. Peterson and Hinda Chaikind, “Summary of Small Business Health Insurance Tax Credit Under PPACA (P.L. 111-148). Congressional Research Service. April 5, 2010.
[7] Small Business Administration, Office of Advocacy. Employer Firms, Establishments, Employment, Annual Payroll and Estimated Receipts by Firm Size, and State, 2007. <http://www.sba.gov/advo/research/st_07.pdf>.
[8] Ellen O’Brien, “Employers’ Benefits from Workers’ Health Insurance,” the Milbank Quarterly, Vol. 81, No. 1 (2003).
[9] Rachel Christensen, Paul Fronstin, Karl Polzer, and Ray Werntz, “Employer Attitudes Affecting and Practices Affecting Health Benefits and the Uninsured: Issue Brief No. 250.” Employee Benefits Research Institute. October 2002. <http://www.ebri.org/pdf/briefspdf/1002ib.pdf>.
[10] Steven Ruggles, J. Trent Alexander, Katie Genadek, Ronald Goeken, Matthew B. Schroeder, and Matthew Sobek. Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010.
 
 

Keys to Fairly Assess the Effective Return on Investment from Public Business Subsidies

IFP BACKGROUNDER

Basic RGB

 

The following are key factors to assessing the return on investment of public economic development programs, tax credits and expenditures.

Most importantly, it is critical to establish a credible way to estimate the degree to which any state economic development program, tax credit, or expenditure actually produced the economic activity and the degree to which the activity would have occurred anyway.This must go beyond beneficiaries’ claims about the value of the business subsidy, to hard evidence that a subsidy or set of so-called “incentives” tipped the balance to assure at least a portion of the investment. After this determination, a methodology for calculating public ROIs must address these key issues:

  • Calculate public investments in terms of public returns, not increased overall economic activity. Public returns involve increased revenue to the state (in taxes and fees) as a result of the increased business activity, and are the way to measure public (tax dollar) investments for their returns.
  • Establish a reasonable time frame for making these estimates, with returns in future years appropriately discounted. A public investment, like a private one, needs to produce returns over a reasonable time period, and future returns should be appropriately discounted.
  • Compare the return on investment in economic development expenditures with the potential gains from alternative uses of the funds. A proper analysis would account for the lost opportunities that would come from making those investments elsewhere.
  • Estimate the impact of the investment on the direct level of economic activity that is projected to occur, including any potential for displacing existing economic activity. The public interest is in net new economic activity, not displacement of one activity with another, which also can provide unfair advantages to new over existing businesses. Displacement occurs when a subsidy simply enables one business to capture an existing firm’s share of a state market that is not expanding.
  • Incorporate additional public costs, as well as benefits, from the economic activity. There may be additional public sector costs that have to be factored in, particularly for additional demands on public services and business-related infrastructure needs or workforce expansions when new economic activity draws people (and service users) to Iowa from outside the state.
  • Only count any return once, even if multiple, independent investments were made to produce it. When multiple economic development subsidies are used to produce increased economic activity, the public return from that activity needs to be apportioned among those multiple subsidy programs, so it is not counted multiple times.
  • Recognize that ROI is only one factor to consider in determining public purpose and benefit.  Some investments can produce economic gain, but at a public cost (environmental degradation or public health and safety). Others can produce public benefits in those areas.  Although these do not have a monetary value, they are important considerations in making public investments and need to be recognized in ROI analyses.
  • Audit for impact and accuracy. Estimates and claims are only estimates and claims; there needs to be monitoring for actual impact, use, and achievement of public goals.
This is a summary of an Iowa Fiscal Partnership Policy Brief, “Bang for the Buck: Calculating the State’s Return on Investments in Economic Development,” by Charles Bruner and Peter S. Fisher (January 27, 2010). www.iowafiscal.org