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Policy Points from Iowa Fiscal Partners

Posts tagged Economic Opportunity

Work supports put Iowans ahead

Posted January 17th, 2020 to Blog

Multiple bills moving through the Iowa Legislature attempt to take food and medical care away from Iowans. SF430 and HF2030 seek to impose harsh work requirements and a redundant eligibility verification system. Both of these costly proposals would needlessly expand bureaucracy while failing to enable work, financial security or health for Iowans.

Instead of promoting better circumstances for workers, work requirements do the opposite. They push families off of vital programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP) — even though access to adequate medical care and food is important for finding and maintaining employment.

Analysis by the Legislature’s nonpartisan fiscal staff in 2019 estimated that imposing parental work requirements on SNAP participants would add $2.5 million in administrative costs in the year implemented, followed by an ongoing annual cost of half a million dollars per year.[1]

Pushing an additional eligibility verification system would have cost $25 million per year after an initial $16 million in FY2020 to hire more than 520 state employees to verify eligibility for Iowans on work support programs including Medicaid and SNAP, according to another 2019 Legislative Services Agency fiscal note.[2] 

The sole result of such bills, if enacted, will be to get Iowans off of work-support programs — not to encourage work. IPP’s latest “Cost of Living in Iowa” analysis found that work-support programs such as SNAP and Medicaid are instrumental in helping Iowa working families bridge the gap between take-home earnings and basic needs. With 1 in 5 Iowa working households unable to meet basic needs on income alone, promoting access to work supports is important.[3]

Policies that enable work and economic prosperity include raising the minimum wage, expanding eligibility for Child Care Assistance, expanding family leave, and investing in job skills training. SF430 and HF2030 would penalize Iowans that are having difficulty making ends meet, in an economy with many low-wage jobs and inadequate benefits.

Remember, taking away food, prescriptions and doctor’s visits from Iowans in no way promotes work.

[1] Jess Benson, “SF 430 – Supplemental Nutrition Assistance Program (SNAP), Parent Work Requirements” March 2019. Legislative Services Agency. https://www.legis.iowa.gov/docs/publications/FN/1039301.pdf

[2] Jess Benson, “Fiscal Note: SF 334 – Medicaid, Supplemental Nutrition Assistance Program (SNAP) Eligibility Verification.” February 2019. Iowa Legislative Services Agency. https://www.legis.iowa.gov/docs/publications/FN/1038439.pdf

[3] Peter Fisher and Natalie Veldhouse, “Strengthening Pathways to the Middle Class: The Role of Work Supports. The Cost of Living in Iowa 2019 Edition, Supplement.” January 2020. Iowa Policy Project. http://iowapolicyproject.org/2020docs/200108-COL2.pdf

2018-NV-6w_3497(1)Natalie Veldhouse is a research associate at the nonpartisan Iowa Policy Project.

nvheldhouse@iowapolicyproject.org

 

 

How real Iowa tax reform would look

Posted January 17th, 2020 to Blog

See IPP’s Roadmap for Opportunity piece on tax reform

Iowa is an average-tax state. Even before expensive tax cuts passed in 2018 to benefit the wealthiest, Iowans paid about 2.5 percent of their income toward income taxes, 2.4 percent for sales taxes, which earns us a rank of 20th and 21st, respectively, among the 50 states.[1] Business taxes in Iowa are actually below average according to recent studies by two accounting firms: one placed Iowa 31st, the other 36th.[2]

Basic RGBBut our tax system already failed the fairness test before those new tax cuts. The highest income Iowans pay a smaller share of their income to state and local taxes than lower and middle-income Iowans — our tax system is regressive. Those in the bottom fifth of Iowa households by income pay 12.4 percent of their income in state and local taxes, while those with incomes in the top 1 percent pay just 7.7 percent.[3] And hundreds of millions in tax revenue are lost every year to corporate loopholes and business tax credits that produce little or no public benefit. At the same time, the state struggles every year to adequately fund education, public safety, health care and other priorities.

Real tax reform, then, would mean three things: (1) ensuring adequate revenue, (2) reducing the regressivity of our tax system, and (3) reining in corporate tax credits and loopholes.

Iowa’s 2018 tax law fails the test, cutting back on both fairness and revenues

The legislation signed into law in 2018 does none of these things. It cuts revenue, makes the tax system more regressive by concentrating tax cuts on the rich, and fails to reform credits or loopholes.[4] The package had one true benefit: modernizing the sales tax to include online purchases and level the playing field for local and state-based businesses.

Under this legislation, however, the income tax savings to a middle-class family by 2021 amount to just $5 to $10 a week and much of that will be taken back by the sales-tax increase. Millionaires, on the other hand, will see on average a $24,636 cut for the year. Almost half of the tax cuts will go to the richest 2.5 percent of Iowa taxpayers, those making $250,000 or more.

The 2018 tax bill also piles $40 million in corporate tax cuts on top of commercial property tax cuts enacted several years ago that have cost local governments millions of dollars. A new special tax break for business owners who receive “pass-through” income will cost in excess of $65 million a year, with 60 percent of the benefit going to the top 2 percent of taxpayers.

Overall, the bill will take $300 to $400 million a year out of the budget that could have gone to adequately fund education or public safety or mental health care. Those revenue cuts will happen regardless of the state of the Iowa economy or the budget; no safeguards will prevent it, despite the bill’s much touted “triggers.”[5]

To add insult to injury, the tax bill is far more likely to hurt the Iowa economy than to help it. The tax cutting experiment in Kansas was a failure, harming the state economy rather than helping it.[6] And Iowa’s own experience with massive tax cutting, in the late 1990s, not only failed to stimulate growth, but likely contributed to the subsequent slowing of the state’s economy.[7] 

Policy Alternatives: The elements of real reform 

  • Ensure adequate funding for our schools, which have been underfunded for years, revenue failing to keep pace with costs. End cuts to state funding of Iowa’s public universities and community colleges, forcing higher tuition, and leaving students and families with rising debt.
  • Plug corporate tax loopholes that cost Iowa an estimated $200 million a year,[8] and rein in business tax credits that grew from $200 million to $423 million in six years.[9]
  • Make our tax system fairer, and better based on ability to pay. This should be done by providing enhanced recognition of the cost of raising a family by expanding the child tax credit and the child and dependent care credit, as well as the Earned Income Tax Credit. Less reliance on the sales tax, which has doubled since 1983 and is poised for another potential increase, or offsets to these increases can enhance opportunities for low- and moderate-income families now put at a disadvantage.

Rebalancing the tax code would reduce its current regressive nature, which imposes higher taxes as a share of income on lower- and middle-income Iowans than on the wealthy.

[1] Taxes as a percent of state personal income for the most recent five years available, 2013-2017, from the U.S. Census, Census of Government Finances.
[2] Iowa ranks 31st in business taxes as a percent of GSP according to Ernst & Young LLP, Total state and local business taxes, October 2019. Table 4, page 12. https://www.cost.org/globalassets/cost/stri/studies-and-reports/FY16-State-And-Local-Business-Tax-Burden-Study.pdf.pdf; Iowa ranks 36th (with #1 being the highest tax rate) in business taxes as a share of business pre-tax operating surplus by Anderson Economic Group LLC, June 2018. 2018 State Business Tax Burden Rankings, Exhibit I, page 17. https://www.andersoneconomicgroup.com/wp-content/uploads/AEGBusinessTaxBurdenStudy_2018_FINAL.pdf
[3] Institute on Taxation and Economic Policy. Who Pays? Sixth Edition. https://itep.org/whopays-map/
[4] See Charles Bruner and Peter Fisher, “Tax plan facts vs. spin.” Iowa Fiscal Partnership, May 5, 2018. http://www.iowafiscal.org/tax-plan-facts-vs-spin/
[5] All the triggers would do is save us from an even larger budget disaster in 2023 and beyond. The triggers are revenue targets; if the targets are not achieved, the last round of cuts will not take place as scheduled for tax year 2023.
[6] Michael Mazerov. “Kansas Provides Compelling Evidence of Failure of ‘Supply-Side’ Tax Cuts.” Center on Budget and Policy Priorities, January 22, 2018. https://www.cbpp.org/research/state-budget-and-tax/kansas-provides-compelling-evidence-of-failure-of-supply-side-tax-cuts
[7] Peter Fisher. “Tax cuts: Already tried, failed.” Iowa Policy Points, April 23, 2018. https://iowapolicypoints.org/2018/04/23/tax-cuts-already-tried-failed/
[8] Iowa Policy Project analysis of Iowa Department of Revenue estimates.
[9] “Growing cost, lax oversight of Iowa business tax credits.” Iowa Fiscal Partnership, March 16, 2018. http://www.iowafiscal.org/wp/wp-content/uploads/2018/03/180319-IFP-taxcredit-bgd.pdf

Positive options for the 2020s

Posted December 31st, 2019 to Blog

iowacapitol-rotundaWe would be remiss at the end of 2019 not to note the positive lessons of the last 10 years.

We have plenty of room to raise the minimum wage, now 12 years old at $7.25 an hour. Had the minimum simply kept up with inflation, it would be 22 percent higher, at $8.83 — but of course still short of a living wage. IPP research shows a single parent needs about $20 to $22 an hour working full time just to make a bare-bones household budget.

We can require polluters to stop ruining Iowa’s water, by putting some teeth in the so-called Nutrient Reduction Strategy, which is rendered meaningless by requiring nothing of polluters. Even the good actors in the ag community should be able to see their efforts are eroded like unprotected soil when neighbors’ farm practices contribute to nutrient pollution.

Without raising tax rates, we can raise significant revenue for education and other shortchanged services, by curtailing or ending research tax-credit checks for corporations that pay no income tax ($40 million), and by closing tax loopholes ($100 million). Instead, we have seen an average increase of less than 2 percent in permitted per-pupil K-12 spending in Iowa over 10 years. We see rising college tuition because of poor state support.

We can make our tax system more fair by shifting our increased reliance on sales taxes to revenue sources such as income tax. Our four-decade trend toward sales tax (and against income tax) may continue in 2020 with the push for environmental quality and recreation as directed by voters in 2010, but it can be paired with moves to make the overall system more fair. Note: That approach demands no new tax cuts for the wealthy.

That list is hardly exhaustive. Queue up child care assistance, wage theft enforcement, restoring and protecting collective bargaining rights, making pensions more commonplace instead of attacking workers who have them. We could even step up efforts to protect vulnerable communities in advance of the next flooding disaster,

The common theme: Since we’ve done nothing or virtually nothing meaningfully positive in 10 years in these areas, even small steps will look good in comparison. And, because of the pent-up frustration of those who would have been satisfied five years ago with small steps, visionary and dramatic steps might be possible.

But this is not a “woulda, coulda, shoulda” refrain like you would hear after a near-miss in a ballgame. For all their theme of decline, retrenchment and a “can’t-do” mindset, the failures of the 2010s really spotlight what we can do through public policy to work together for a stronger, more equitable, more inclusive, more sustainable Iowa in the 2020s.

This is a moment to start a rebound.

At the Iowa Policy Project, we have used solid information and years of perspective to spotlight challenges and ways to make life in Iowa better, next year, five years, even 10 years from now.

So, bring on 2020!

MMike Owen is executive director of the nonpartisan Iowa Policy Project. mikeowen@iowapolicyproject.org

The Iowa Policy Project is a 501c3 nonprofit organization funded by individual donations, organizations and foundation grants. Tax-deductible contributions may be made online at this link.

Missed opportunities combatting climate change

Posted December 23rd, 2019 to Blog

I recently watched part of the Hancher Auditorium parking lot ripped up and repaved at the University of Iowa. With the university community well aware of the impacts of flooding, I was surprised by the missed opportunity to rebuild the parking lot with more water retention features like bioswales or permeable pavers. We know that heavy rainfall impacts in Iowa will only grow as climate change accelerates.[1]

At the same time, I realized these types of interventions are expensive and perhaps outside the routine maintenance budget. So I turned my attention to other ideas for the campus: solar power opportunities and the university’s pledge to combat climate change through renewable power generation. Surely such an ambitious proposal would have resources enough to invest in solar power generation.

In 2017, UI President Bruce Harreld announced a goal to increase the university’s use of renewable resources for power and steam production and reduce coal firing for steam and energy production, and entirely phasing out coal by 2025.[2] This laudable goal addresses climate change, makes the university’s operations more sustainable, and improves air quality in Iowa City. Why not enhance this goal with solar panels?

The President’s message noted that the university would rely on a combination of biomass firing for renewable resources to hit a target of 40 percent of energy production by 2020. The university has pursued various options of biomass to be fired alongside coal for the time being (and presumably to be fired by itself once coal is eliminated). These options are:

      • Oat hulls, the byproduct of industrial processes, currently sourced from Quaker Oats in nearby Cedar Rapids. This fuel source is readily available, and by reusing formerly discarded ingredients the UI can prevent methane emissions from decomposition while burning a carbon-neutral fuel.
      • Miscanthus grass,[3] a non-native, but non-invasive grass, is often used for biomass around the world due to its high energy content and quick growing nature. The university has planted a few collection areas and buys harvest from local producers.
      • Energy pellets, another industrial byproduct that can be fired alongside coal. Like oat hulls, adding another use to an already ongoing industrial process is more sustainable than burning a non-renewable fuel source.

On its face, this strategy seems like an innovative use of natural ingredients that are carbon neutral and close by, obtainable from regional industry and agriculture.

But it’s still only 40 percent of the plan. Where does the remaining 60 percent come from? Natural gas,[4] which is “cleaner” than coal firing for particulate matter and CO2 , is readily available, and adds a power predictability that is hard to get from some renewable resources. But should natural gas be 60 percent of the university’s energy portfolio, when renewables could play a bigger role?

The university’s Office of Sustainability mentions, but dismisses, greater use of wind power and solar power. Both are mentioned as being implemented in a limited fashion on campus as demonstration projects for research purposes, but said to be too resource intensive (land and money) to fully replace other energy production methods for campus uses.

The message is a concern. If a complete replacement strategy were a qualifying criteria, why would it not apply to biomass firing sources as well. If not, why would the UI not consider solar and wind as a smaller scale, partial contribution to the university’s energy portfolio?

Other universities, including Maryland and Michigan State[5] have both solved cost concerns with public-private partnerships and power purchasing agreements. Indeed, UI researchers already note that the kilowatt cost of solar is below that of more traditional production requirements in some states, with the implication that similar cost comparisons will become more attainable through the country.[6]

Given the similarities between the UI and Michigan State (MSU) — both large public universities in the Midwest with similar climates and both governed by a quasi-public Board or Regents — the MSU example with solar power may prove fruitful. MSU followed the lead of several U.S. universities (including UC San Diego[7]) in deploying solar panels above parking lots on campus.

Solar could bring several benefits if installed at the Hancher lot, beyond power generation. Besides vehicle protection, it could offer research opportunities on solar generation, grid distribution methods, and power storage mechanisms for engineering faculty and students.[8]

Indeed, the University of Iowa already has experience in similar solar deployments. Its Facilities Management department already operates a solar power charging station for university vehicles, just on a much smaller scale.[9] The university has many surface parking lots that could reduce ongoing university expenses by harnessing the air rights just 10 feet above existing lots.

If this isn’t incentive enough, the university is ranked eighth in the Big Ten Conference for green power generation by the U.S. Environmental Protection Agency.[10] Surely Hawkeye pride can carry us to be No. 1. Forget Hancher. Perhaps the lots around Kinnick Stadium could be ground zero for a Hawkeye solar project — with a slogan ready to go: America Needs Solar.

[1] https://www.iowapolicyproject.org/2019Research/190905-Floods-Climate.html
[2] https://now.uiowa.edu/2017/02/ui-announces-it-will-be-coal-free-2025
[3] https://www.facilities.uiowa.edu/sites/www.facilities.uiowa.edu/files/wysiwyg_uploads/hawkeyecampusmiscanthus.pdf
[4] https://www.facilities.uiowa.edu/energy-environment/renewable-energy
[5] https://msutoday.msu.edu/news/2019/msu-helps-big-ten-achieve-largest-collective-green-energy-use/
[6] https://dailyiowan.com/2018/03/19/solar-energy-lights-up-on-campus/
[7] https://www.borregosolar.com/commercial-solar-systems/university-of-california-san-diego
[8] https://msutoday.msu.edu/news/2017/construction-begins-on-msu-solar-array-project/
[9] https://www.facilities.uiowa.edu/sustainable-energy-discovery-district
[10] https://www.epa.gov/greenpower/college-and-university-challenge

Joseph Wilensky is a Master’s Degree candidate in the University of Iowa School of Urban and Regional Planning. He was an intern at the Iowa Policy Project during the fall semester 2019.

Differences in Disaster: A series of observations

Posted December 21st, 2019 to Blog

Part 3: It all comes down to equity

Public policy to deal with flooding involves a lot of big-ticket items that carry big implications for the future of communities that, by choice or by economic necessity stand in harm’s way.

This issue all comes down to one of equity and equality.

Matt Kinshella graphic, source info below*

Equality would ensure every community is provided the same resources and consideration regardless of their characteristics. But, as we have discussed, providing the same resources to a community that has less opportunity and ability to recover as one that is well positioned to do so results in the outcomes we have seen: Wealthy communities become wealthier while poorer communities fall further and further behind.

Equity calls for alleviating these disparities to create the opportunity for equal recovery rates and outcomes among disparate communities.

How do you do that? The following suggestions are a few items that will work toward leveling the playing field.

      • “Rebalance” mitigation efforts with an emphasis on community impact and vulnerability rather than up-front economic loss, the latter putting higher-value properties ahead of those less able to cope on their own.
      • Put more flexibility in FEMA guidelines to ease community burdens and allow for a creative use of funds.
      • Better direct Community Block Development Grant funds to the best place for mitigation efforts — not necessarily within the damage area, but outside if needed. Flood mitigation is best placed upstream.
      • Keep state funds flowing pending the arrival federal aid, which might be delayed after a federal disaster is declared and Iowa stops processing and paying disaster claims.

While these suggestions won’t fix everything, they offer a start to a discussion that needs to start now. Policy makers and recovery agents must take into account social vulnerability and community impacts to a greater extent than they already do if we are to break the downward spiral poor communities find themselves in following disasters.

Previous:
Part 1: Flooding hits different families differently
Part 2: Flood mitigation protects different families differently

Joseph Wilensky is a Master’s Degree candidate in the University of Iowa School of Urban and Regional Planning. Visit the Iowa Policy Project website for his December 2019 report, Flooding and Inequity: Policy Responses on the Front Line.

 

* Graphic credit: Matt Kinshella; culturalorganizing.org blog, “The problem with that equity-vs.equality graphic you’re using.” Copyright Paul Kuttner

Tax credits: Just review them!

Posted November 11th, 2019 to Blog

Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be.

Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today.

The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018.

It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010.

Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024.

Basic RGB

While the tax credits themselves can be complicated, the fundamental issues are not.

  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.

As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before.

Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk.

The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits.

As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms.

Basic RGB

DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it.

In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need.

Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities.

Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel.

These are budget choices, ultimately. Why are legislators so afraid to even start on them?

MMike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

Tax credits: Just review them!

Posted November 11th, 2019 to Blog

Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be.

Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today.

The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018.

It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010.

Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024.

Basic RGB

While the tax credits themselves can be complicated, the fundamental issues are not.

  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.

As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before.

Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk.

The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits.

As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms.

Basic RGB

DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it.

In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need.

Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities.

Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel.

These are budget choices, ultimately. Why are legislators so afraid to even start on them?

MMike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

Tax credits: Just review them!

Posted November 11th, 2019 to Blog
Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be. Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today. The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018. It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010. Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024. Basic RGB While the tax credits themselves can be complicated, the fundamental issues are not.
  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.
As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before. Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk. The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits. As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms. Basic RGB DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it. In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need. Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities. Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel. These are budget choices, ultimately. Why are legislators so afraid to even start on them? MMike Owen is executive director of the nonpartisan Iowa Policy Project. mikeowen@iowapolicyproject.org

Health care premiums are taxes

Posted November 8th, 2019 to Blog
Guest post: Ted Boettner, West Virginia Center on Budget & Policy

(Note: This piece also appeared in the Charleston, W.V., Gazette-Mail)

While the United States is a low-tax country compared to most industrialized nations, for a majority of Americans it doesn’t feel this way. That’s largely because private health insurance companies receive a large portion of our income every month. If we sent our money to a publicly run health insurance plan (e.g. Medicare) instead, almost all of us would save thousands of dollars each year while guaranteeing comprehensive health coverage for everyone.

The United States is unique in that we pay for a large part of our health care costs through an employer-based system. It is a creature of World War II, when we had price controls on wages and everything else to stamp down on inflation. Instead of increasing wages, employers offered health insurance. No other modern industrialized nation finances most of its health care system this way, because it does a terrible job of controlling costs, it’s highly regressive and it causes job lock, where people stay with a job just to receive health insurance.

For private-sector workers in West Virginia, the average health insurance premium was nearly $21,000 for family coverage in 2018. While employers typically cover most of these payments, it is widely recognized that employers consider the payments as part of an employee’s total compensation. Large increases in health insurance premiums have downward effects on workers’ wages.

The Economic Policy Institute finds that the rapid growth in employer-sponsored insurance premiums since 1979 had crowded out almost $390 billion in potential cash-wage increases for American workers by 2016, with employer-based family premiums now comprising over half of most worker’s wages.

A 2019 University of Pennsylvania study found that workers in West Virginia had the fourth-highest health care cost burden (family premiums as a share of median household income) in the nation in 2016. So employee compensation is going up, due to health insurance getting more expensive, but the money is going to private health insurance companies, leaving employers less likely to increase wages.

Since paying health insurance premiums is basically mandatory for most workers (employers with 50 or more full-time workers must enroll them in a health insurance plan), insurance premiums paid by employers act just like a tax — but a tax paid to private insurance companies, instead of the government.

If you include these payments as a tax on labor, U.S. workers are taxed higher than those living in most European countries. The insurance premium payments are also highly regressive, falling harder on those with smaller incomes. And this doesn’t even take into consideration out-of-pocket spending, such as co-pays or deductibles, which have also grown considerably over the years.

This is a terrible to way to fund health care. Setting up a universal system, such as Medicare for All, would give the vast majority of workers the biggest take-home pay raise they’ve ever seen. Instead of paying private health insurance companies, it would be financed publicly by enacting a combination of higher taxes on the wealthy and big corporations, implementing costs savings (e.g. lower prescription drug prices and administration costs) along with a flat payroll tax similar to Social Security and Medicare.

While the naysayers of universal health care like to talk about Medicare for All being a huge tax increase, it’s actually a massive tax cut for most Americans. Here’s an illustrative example. Suppose we have a privately owned and poorly run water utility in Kanawha County that charges everyone $50 a month despite frequent leaks and boil water advisories. One day, this utility shuts down and the county decides to take it over and charge everyone an annual “tax” of $500. Would you be outraged that you have to pay $500 in a new tax or be happy that you will now save $100 on your water bill each year?

(Hint: Ask a resident in Morgantown if they would prefer to pay Charleston rates for water or the lower amount to their publicly owned water utility).

While opponents of Medicare for All like to scare people with big numbers, saying it will cost $32.6 trillion over the next 10 years, this is actually about $2 trillion less in total national projected health spending over this period. Estimates show Medicare for All would reduce total U.S. health expenditures by $5.1 trillion over 10 years relative to current projections under our existing system.

The moral of this story is do not let people mislead you by focusing just on taxes, leaving out the services those taxes pay for and the other costs those taxes replace. Like clean water, we all need affordable health care coverage and today our premiums are taxing us harder than ever. Solutions like Medicare for All can reduce overall health spending while ensuring we all have access to health care anytime we need it. Untying health premiums from overall compensation gives us not only more money in our pockets, but the freedom to start a new business, avoid bankruptcy, lower stress, improve productivity and live longer and healthier lives.

The Center, like the Iowa Fiscal Partnership of the Iowa Policy Project and the Child and Family Policy Center, is a member of the State Priorities Partnership.

Full-time work not enough

Posted October 18th, 2019 to Blog

Many Iowa families are unable to afford groceries, car maintenance or prescription refills, even though there is at least one full-time worker in the household. This presents a double bind, where Iowans are faced with limited economic opportunity despite their hard work.

The Iowa Policy Project’s 2019 Cost of Living report delves into these issues, finding work does not provide 1 in 5 Iowa working households enough to meet basic needs.

IPP constructs basic needs budgets that reflect a frugal standard of living — including food, health care, child care, household expenses, and transportation, then uses Census data to calculate the number of working households that make less than a wage that meets these basic requirements. These budgets leave no room for Netflix, student loan debt, vacations or eating at restaurants.

A majority of single-parent working households are unable to meet basic needs in Iowa. Our analysis shows that a wage of at nearly $20 per hour is needed just to afford basic expenses for single-parent families. This is consistent with research showing higher poverty rates among single-parent households, due to single incomes, child care expenses, generally lower educational attainment and low wages.

Evidence-based policymaking can address the reality that many working Iowans do not make enough to afford basic expenses. Policies that increase the minimum wage and adjust it to the cost of living, provide paid family leave, and boost Child Care Assistance will serve to ensure Iowans are able to just get by and hopefully get ahead.

Natalie Veldhouse is a research associate at the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org