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EITC boost would help families who need it — and economy

Posted January 17th, 2013 to Blog
Heather Gibney, Research Associate

Heather Gibney

If you imagine a packed Kinnick Stadium on game day you have an idea of how many Iowans were kept out of poverty from 2009 to 2011 thanks to two refundable tax credits.

A new state-by-state analysis from the Brookings Institution finds that the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) kept 71,123 Iowans out of poverty, over half of them children.

The Governor’s Condition of the State speech Tuesday missed an opportunity to discuss the value of Iowa’s own Earned Income Tax Credit (EITC) to Iowa families and prospects for an expansion — something he has twice vetoed on grounds that he wanted more comprehensive tax reforms.

The Brookings analysis uses a new way of looking at poverty: the Supplemental Poverty Measure, an updated approach to the calculation of whether an Americans household is in poverty. So it’s a valuable look that we haven’t seen for state-level figures.

The EITC is designed to encourage work when low-income jobs don’t provide enough for a family to make ends meet. So, as a family earns more income, they become eligible for a larger credit; as their income approaches self-sufficiency the EITC gradually phases out.[1]

At the state level, Iowa families who are eligible for the federal EITC also qualify for the state EITC, which is set at 7 percent of the federal credit. Proposals in the past would take that higher, to 10 percent or even 20 percent. It can be an important break for lower-income working families because Iowa already taxes the income of many who don’t earn enough to pay federal income tax. Currently, a married couple with two incomes and two children who qualifies for the federal EITC doesn’t have to start paying federal income taxes until their incomes reach $45,400. That same family would have to pay Iowa income taxes when their incomes reached $22,600.[2]

The EITC is the the nation’s largest and most successful anti-poverty program, largely because it encourages and rewards working families. With Iowa’s 85th General Assembly under way, discussions about raising Iowa’s EITC above 7 percent may once again emerge after lawmakers failed to reach an agreement last year.

An EITC increase would raise the threshold at which Iowa families start to owe income taxes — putting more money into the pockets of those who need it the most and encouraging them to spend that money in their local communities.

Posted by Heather Gibney, Research Associate


Accountability is good for tax breaks, too

Posted January 4th, 2013 to Blog
Mike Owen

Mike Owen

The Des Moines Register has an interesting editorial today about the state’s voluntary preschool program. The Register is asking for accountability:

“Before lawmakers consider any new education reforms, they should ensure that the changes they made a few years ago are helping.”

Hard for anyone to argue with that. Advocates of preschool surely would not fear a legitimate review. And what better time to review and adjust a program than its early years?

Now, wouldn’t it be interesting to see the same concept applied to Iowa’s many tax breaks for corporations? Do they do any good? There is no evidence that they do for the most part, a fact ignored routinely by the Iowa General Assembly and our Governors past and present, but they just keep on going. The idea of a review of tax breaks only gets lip service from most lawmakers; there are no serious reviews and no teeth in state law to require them.

The Research Activities Credit alone is a program crying out for this kind of scrutiny, a point clear from the few details that are available (See http://www.iowafiscal.org/2012research/120221-IFP-RAC.html). Unlike the preschool program, in which 9 out of 10 Iowa school districts participate, the RAC is used by a relative handful of companies in Iowa, well under 200, and is dominated by less than 10.

The money is not all that different: $58 million in 2011-12 for preschool through the state formula vs. almost $48 million for the RAC in 2011 — with $45 million of that paid in “refund checks.” These are not refunds of taxes paid, and they don’t even reduce taxes. Instead, millions go to big corporations such as Rockwell Collins, Deere and DuPont that owe so little in income tax that their tax credits are far above the amount of taxes they owe.

What’s good for the goose of preschool is certainly good for the gander of tax breaks.

//EDITOR’S NOTE: The next annual report on the use of the Research Activities Credit is due Feb. 15 from the Iowa Department of Revenue. Stay tuned!//

Posted by Mike Owen, Assistant Director


Accountability is good for tax breaks, too

Posted January 4th, 2013 to Blog
Mike Owen

Mike Owen

The Des Moines Register has an interesting editorial today about the state’s voluntary preschool program. The Register is asking for accountability:

“Before lawmakers consider any new education reforms, they should ensure that the changes they made a few years ago are helping.”

Hard for anyone to argue with that. Advocates of preschool surely would not fear a legitimate review. And what better time to review and adjust a program than its early years?

Now, wouldn’t it be interesting to see the same concept applied to Iowa’s many tax breaks for corporations? Do they do any good? There is no evidence that they do for the most part, a fact ignored routinely by the Iowa General Assembly and our Governors past and present, but they just keep on going. The idea of a review of tax breaks only gets lip service from most lawmakers; there are no serious reviews and no teeth in state law to require them.

The Research Activities Credit alone is a program crying out for this kind of scrutiny, a point clear from the few details that are available (See http://www.iowafiscal.org/2012research/120221-IFP-RAC.html). Unlike the preschool program, in which 9 out of 10 Iowa school districts participate, the RAC is used by a relative handful of companies in Iowa, well under 200, and is dominated by less than 10.

The money is not all that different: $58 million in 2011-12 for preschool through the state formula vs. almost $48 million for the RAC in 2011 — with $45 million of that paid in “refund checks.” These are not refunds of taxes paid, and they don’t even reduce taxes. Instead, millions go to big corporations such as Rockwell Collins, Deere and DuPont that owe so little in income tax that their tax credits are far above the amount of taxes they owe.

What’s good for the goose of preschool is certainly good for the gander of tax breaks.

//EDITOR’S NOTE: The next annual report on the use of the Research Activities Credit is due Feb. 15 from the Iowa Department of Revenue. Stay tuned!//

Posted by Mike Owen, Assistant Director


Remaking ‘Blazing Saddles’

Posted December 13th, 2012 to Blog
Peter Fisher

Peter Fisher

Some of the arguments against raising tax rates on the richest 2 percent of Americans back to the level that prevailed during the boom years of the 1990s bring to mind Mel Brooks’ classic, Blazing Saddles. In the film, new Sheriff Bart is surrounded by an angry mob. He draws his gun, points it at his own head and warns he’ll shoot if someone makes a move. The mob freezes and Bart escapes to safety.

In the current remake of the film, Bart is being played by the wealthy businessmen claiming they will have to lay off workers if we raise the tax rate on their profits by 3.6 percentage points.

We can reasonably assume those workers are currently productive, earning enough for the owner to cover their wages and add something to the bottom line. If not, they would have been laid off long ago. So these owners would have us believe that an increase in the tax on profits would lead them to lay off these productive workers. That, in turn, would mean the business is producing less, earning less profit before taxes.

So the owners are actually saying, “If you raise my taxes, I will show you a thing or two — I’ll deliberately sabotage my business so you have less profit to tax.”

A business owner whose objective is to maximize after-tax profits will always be better off producing more, with more workers, and earning more before-tax profit, no matter what percent of those profits end up going to pay income taxes. On the other hand, making a political point may be so important to these owners that they are willing to shoot themselves in the foot, if not the head, to do it. If they are rich enough to afford that symbolic gesture, I guess we can’t stop them.

Fortunately, in the remake of Blazing Saddles, it appears that the angry mob is ready to call their bluff. They recognize that the “job-killing tax increase” is no such thing. It is simply an effort to reclaim for the average American a share of the increased wealth generated by workers in this economy in recent years that has been captured almost entirely by the richest among us.

Posted by Peter Fisher, Research Director


Remaking ‘Blazing Saddles’

Posted December 13th, 2012 to Blog
Peter Fisher

Peter Fisher

Some of the arguments against raising tax rates on the richest 2 percent of Americans back to the level that prevailed during the boom years of the 1990s bring to mind Mel Brooks’ classic, Blazing Saddles. In the film, new Sheriff Bart is surrounded by an angry mob. He draws his gun, points it at his own head and warns he’ll shoot if someone makes a move. The mob freezes and Bart escapes to safety.

In the current remake of the film, Bart is being played by the wealthy businessmen claiming they will have to lay off workers if we raise the tax rate on their profits by 3.6 percentage points.

We can reasonably assume those workers are currently productive, earning enough for the owner to cover their wages and add something to the bottom line. If not, they would have been laid off long ago. So these owners would have us believe that an increase in the tax on profits would lead them to lay off these productive workers. That, in turn, would mean the business is producing less, earning less profit before taxes.

So the owners are actually saying, “If you raise my taxes, I will show you a thing or two — I’ll deliberately sabotage my business so you have less profit to tax.”

A business owner whose objective is to maximize after-tax profits will always be better off producing more, with more workers, and earning more before-tax profit, no matter what percent of those profits end up going to pay income taxes. On the other hand, making a political point may be so important to these owners that they are willing to shoot themselves in the foot, if not the head, to do it. If they are rich enough to afford that symbolic gesture, I guess we can’t stop them.

Fortunately, in the remake of Blazing Saddles, it appears that the angry mob is ready to call their bluff. They recognize that the “job-killing tax increase” is no such thing. It is simply an effort to reclaim for the average American a share of the increased wealth generated by workers in this economy in recent years that has been captured almost entirely by the richest among us.

Posted by Peter Fisher, Research Director


IFP News: Selling Snake Oil to the States

IPP-Good Jobs First Study:

ALEC’s Advice to States on Jobs Is Actually a Recipe for Stagnation and Wage Suppression

View report (PDF) from Iowa Policy Project/Iowa Fiscal Partnership and Good Jobs First
Download this news release (2-page PDF)

snakeoiltothestates-3inWashington, D.C. (Nov. 28, 2012) — A new study finds that state tax and regulatory policies recommended by the American Legislative Exchange Council (ALEC) fail to promote stronger job creation or income growth, and actually predict a worse performance.

Since ALEC first published its annual Rich States, Poor States study with its Economic Outlook Ranking in 2007, states that were rated better have actually done worse economically.

Those are the key findings of “Selling Snake Oil to the States,” a study published today by Good Jobs First and the Iowa Policy Project and freely available online at http://www.goodjobsfirst.org/snakeoiltothestates. It was released at a press conference the same week ALEC holds its annual fall meeting in Washington, D.C.

“We tested ALEC’s claims against actual economic results,” said Dr. Peter Fisher, research director of the Iowa Policy Project and primary author of the study. “We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

The study dissects the methodology used by ALEC’s lead author Arthur Laffer and his co-authors. It finds that their arguments and evidence range from deeply flawed to nonexistent, consistently ignoring decades of peer-reviewed academic research. Instead, Laffer et al repeatedly engage in methodologically primitive approaches such as two-factor correlations and comparing arbitrary small numbers of states instead of all 50.

The study finds that the composition of a state’s economy — whether it has disproportionate shares of high-growth or low-growth industries — was a far better predictor of a state’s relative success over the past five years.

“State corporate income taxes average less than one-fifth of 1 percent of the average company’s costs,” said Fisher. “The ALEC/Laffer studies would have state leaders ignore site-location basics and disinvest public goods that benefit all employers.”

Good Jobs First is a nonprofit, nonpartisan resource promoting accountability in economic development and smart growth for working families. It was founded in 1998 and is based in Washington, D.C.

The Iowa Policy Project is a nonpartisan, nonprofit organization promoting public policy that fosters economic opportunity while safeguarding the health and well-being of Iowa’s people and environment. It was formed in 2001 and is based in Iowa City.

A full table

Posted November 21st, 2012 to Blog
Mike Owen

Mike Owen

As the serving table groans and the plate runneth over for many Americans on Thanksgiving Day, the bounty of food they enjoy will not be so plentiful for all.

Many Iowans will face a challenge — as they often have — just to be able to provide enough for their family. They will be thankful that our nation does set aside enough to help them get by. It’s nothing extravagant, but it matters in keeping their children and themselves fed when times are tough. It comes in the form of what we have long known as “Food Stamps,” one of the most successful programs ever initiated by the federal government.

Against this backdrop, Congress holds the fate of the Farm Bill, legislation passed every five years. Three-fourths of the package is related to nutrition support, including Food Stamps — now SNAP, the Supplemental Nutrition Assistance Program. The outcome, as outlined by Michael Bruner in a recent brief for the Iowa Fiscal Partnership, Children and the Farm Bill, shows that decisions in the lame-duck session will have important implications for how well SNAP continues to meet the needs of struggling Americans.

Gridlock in Washington over the past year has left this issue hanging. As IPP’s Andrew Cannon noted a year ago in his report on public and private nutrition programs, A Secure Nutrition Network, “Even a robust private network of food banks and food pantries cannot fully cover the needs of food insecure Americans if federal nutrition programs lapse.”

As we celebrate the holidays and prepare for the year ahead, we should note that over 197,000 households in Iowa, representing over 419,000 people, received food assistance benefits in October totaling about $51 million. Is $51 million a lot of money? Yes — and it’s going into local economies across the state, while providing important help to families.

But there’s no one living extravagantly off that assistance. It works out to about $121 a month per person — about $3.89 per day, or $1.30 per meal. It is, as advertised, a “supplemental” benefit for, in many cases, working families.

The table is full of important issues, none more important than assuring that all Americans, particularly children, have enough to eat.

Posted by Mike Owen, Assistant Director

———

Other resources on this issue:

Check out the “Policy Basics” brief from the Center on Budget and Policy Priorities: http://www.cbpp.org/cms/index.cfm?fa=view&id=2226 and the latest food security report from USDA: http://www.ers.usda.gov/publications/err-economic-research-report/err141.aspx


Talk is cheap

Posted November 20th, 2012 to Blog
David Osterberg

David Osterberg

There are three principal problems with the Governor’s proposed Nutrient Reduction Strategy, and they can be summed up in three words: Talk is cheap.

Solutions to this problem start with enforcement, and that takes money. The state of Iowa shortchanges water quality, underfunding it even compared to what we did a decade ago. Our March 2012 report, Drops in the Bucket: The Erosion of Iowa Water Quality Funding, found that this water-quality funding decline came despite greater needs for water protection and public willingness to fund it.

Second, inadequate enforcement of environmental rules for Iowa’s livestock industry has resulted in the state’s censure by the U.S. Environmental Protection Agency, and this threatens our ability to write permits and otherwise enforce our obligations under the Clean Water Act. The strategy bases enforcement on voluntary acceptance of state rules. This has not worked.

Finally, it says much about Iowa’s commitment to water quality — or lack of commitment — when the state proposes a major nutrient reduction strategy and offers no new money to get the job done. The strategy proposes nothing to make sure Iowa does better in assuring clean water for its residents, for states downstream, and the future.

In short, we need a strategy that recognizes the serious water quality problem we have and offers a realistic approach to addressing it. This must be more than a goal — but a guarantee to all Iowans.

Posted by David Osterberg, Executive Director


Does Iowa have the will to govern itself?

Posted November 13th, 2012 to Blog

Does Iowa have the will to govern itself?

How ironic that we have reason to ask that question, a week after a presidential election that capped three-plus years of courting of Iowa voters, and a few days before a potential 2016 candidate visits to start all of it brewing again.

Yet the question is unavoidable. Consider two pieces in today’s Des Moines Register.

First, the Register reports, the federal Environmental Protection Agency may take over water quality enforcement in Iowa due to weak efforts by Iowa’s state Department of Natural Resources (DNR).

As IPP’s David Osterberg recently told EPA officials to hold DNR more accountable because the state is underfunding water protection.

“EPA should help the agency in bargaining with a legislature that has shown itself to be less concerned with water quality protection than tax cuts. … There is no question that if EPA simply accepts the agency’s agreement to try to do better, water quality will not improve in this state.”

If the EPA admonishment of Iowa’s lax environmental enforcement were not enough, we also are waiting for the state to offer its long-overdue decision on how to proceed on health reform. The 2012 election affirms the Affordable Care Act will not be repealed, so the state’s dragging its heels on creating a health insurance exchange no longer makes sense — if it ever did.

Yet, we now have a real question of whether it’s a good idea for the state to move ahead on its own with an exchange, where Iowans can shop for affordable insurance and not be denied coverage, or having the federal government do it for us. As the Register opined in an editorial today, “It is too important for this state to mess up.” Citing problems implementing temporary high-risk pools, and political dealings in previous legislative attempts to create an exchange, the Register noted:

“Iowans need the coming insurance marketplace to work for them in years to come. But state leaders have shown they are not the ones to design it.”

Can we govern ourselves? Apparently national candidates will come calling in Iowa without worrying about that. So maybe we should answer if for ourselves.

Posted by Mike Owen, Assistant Director


Small businesses understand competitive realities, role of government

Posted October 25th, 2012 to Blog
Mike Owen

Mike Owen

Political talk pandering to small businesses is commonplace, and often involves inaccurate assumptions about positions on taxes and the role of government. Thus, they are not only frequent, but frequently wrong.

A survey released today by the Small Business Majority (SBM) www.smallbusinessmajority.org — a nonpartisan small-business advocacy group — found wide acknowledgement of the need for more equitable, sustainable fiscal choices in Washington. As noted by SBM:

Contrary to popular belief, nationwide scientific opinion polling conducted earlier this month found that the majority of small business owners—more of whom identify as Republican than Democrat (47%-35%)—believe that raising taxes on the wealthiest 2% is the right thing to do in light of our budget crisis. What’s more, 40% strongly believe this.

The polling also found the majority of entrepreneurs see a productive role for government in helping small businesses achieve success. Nearly 6 in 10 agree government can play an effective role in helping small businesses thrive.

These are interesting results but they should not be terribly surprising.

Folks in small business know:

  • Budgets have two sides — spending and revenue.
  • Small businesses benefit when employees and consumers are educated, safe, healthy and financially secure.
  • Small businesses can compete when the playing field is level for all businesses; it’s hard to compete with bigger competitors who are getting special breaks from the referee — government.

And there are lessons in this for state policy makers as well.

Tax breaks geared to multistate corporate giants that can shift profits to other nations or states do not benefit small businesses, or all businesses equitably, and do not always help the economy. It is clear that people running small businesses understand this.

Iowa can make the playing field better, and restore squandered revenue, by plugging tax loopholes that are costing the state $60 million to $100 million a year. Several states already do this, including four of the six states that border Iowa: Illinois (home of Deere & Co.), Wisconsin, Minnesota and Nebraska. But Iowa lawmakers have refused to defy the big corporate lobbyists that have stood in the way of this important reform, known as “combined reporting.”

You can learn more about that and other inequitable, unaccountable tax breaks in Iowa at the Iowa Fiscal Partnership website, www.iowafiscal.org.

Posted by Mike Owen, Assistant Director


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