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Cliff ahead: Learn from Kansas

The Iowa Senate is poised to move a massive tax cut bill out of committee today, in the belief that somehow what was a disaster in Kansas will be a big success in Iowa.

Despite chronic revenue shortfalls that have forced a series of mid-year budget cuts over the past two years, and the prospect of a tight budget for next year, Senate Republicans propose to cut $1 billion a year from the state budget. They are moving the bill forward without even an analysis of its impact.

Proponents claim this will make Iowa more competitive and boost the economy. There are two problems with this claim. First, two major accounting firms that rank states on their level of business taxation continue to put Iowa right in the middle of the pack, or even better. We are already competitive. Ernst & Young (below) ranks Iowa 29th, while Anderson Economic Group’s measure ranks Iowa 28th — in both cases, showing little difference across a broad middle range of the scale.

Second, there is good reason to expect the bill to have negative effects on the economy, not positive. When Kansas enacted major cuts to state income taxes in 2012 and 2013, the Governor and his friends at ALEC (the American Legislative Exchange Council) lauded this experiment — which five years later has proven to be a dramatic failure.

Abundant evidence shows the tax cuts failed to boost the Kansas economy. In the years since the tax cuts took effect Kansas has lagged most other states in the region and the country as a whole in terms of job growth, GDP growth, and new business formation.

When confronted with the Kansas failure, the bill’s proponents respond that the only problem in Kansas was that they failed to cut services sufficiently to balance their budget. But here’s the problem: Their constituents were up in arms over the cuts they did enact; they would not have stood for anything more drastic.

In order to bring the budget somewhat back in balance, Kansas borrowed from the future, using up reserves, postponing infrastructure projects, and missing contributions to the pension fund. Schools closed weeks early when state funding ran out. Had they cut spending further, that would have put a bigger dent in the economy, as recipients of government contracts were forced to retrench and workers laid off spent less in the local economy.

A supermajority of the Kansas Legislature voted to end the experiment last year, recognizing it as a failure and responding to the demands of Kansas citizens to restore funding to education, highways, and other state services they rely on. That decision no doubt saved the state economy from performing even worse in the years to come.

The Senate bill would harm Iowa in much the same way. Education accounts for over half of the state budget. Tax cuts of this magnitude would have very serious consequences for our public schools, and would force tuition up drastically at community colleges and regents institutions. Our court system would be forced into further personnel cuts, meaning long delays for those seeking justice. We would see more children suffer as family service workers face ever higher caseloads.

Proponents claim the Senate plan is “bold.” So is jumping off a cliff.

Peter Fisher is research director of the nonpartisan Iowa Policy Project. pfisher@iowapolicyproject.org

 

Related from Peter Fisher:

The Lessons of Kansas

The Problem with Tax Cutting as Economic Policy

Kansas poses warnings for Iowa

IFP News:

Failed tax-cut experiment shows states how not to proceed
New report exposes the danger of supply-side tax-cutting by states

Basic RGB

 

IOWA CITY, Iowa (Jan. 24, 2018) — A new report shows Iowa lawmakers should pay attention to the failed experiment in Kansas and focus any tax changes on fairness and stabilizing revenues for education and other critical services.

“Kansas tried cutting taxes to promote economic growth in 2012 and instead wound up lagging its neighbors — including Iowa — and the nation, forcing cuts in school funding and other needs,” said Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP).

The new report from the Center on Budget and Policy Priorities is the latest illustration of why Kansas shows how not to proceed. And now that this is clear, tax-cut proponents have backed off their earlier celebration of Kansas.

“It’s a bad risk for our state,” Fisher said. “It is being driven by outside forces and ideology, and we already know it does not work.”

In 2012, tax-cut supporters said Kansas would boost its economic competitiveness by sharply curtailing taxes on high-income people and businesses. While Kansas Governor Sam Brownback had called the cuts a “shot of adrenaline into the heart of the Kansas economy,” the result left tax-cut supporters scrambling for excuses, saying that the Brownback experiment was tainted.

CBPP, however, found the Kansas tax cuts to be a valid test of supply-side economics. That they failed the test is not a surprise. The CBPP report as well as previous IPP research by Fisher, available at www.gradingstates.org, shows that the preponderance of academic research has found that personal income tax cuts typically produce little if any economic growth.

From December 2012 (just before the tax cuts took effect) to May 2017 (just before they were repealed) jobs in Kansas grew only 4.2 percent, below all of its neighbors except Oklahoma and less than half of the 9.4 percent job growth in the United States.

Yet in Iowa, promises of tax changes are coming with a heavy dose of the failed supply-side, trickle-down approach. And work on the changes is — so far — behind closed doors.

“Iowa’s tax discussion from start to finish belongs out in the open. The impacts will be felt by all Iowans, and all Iowans should be at the table — with legitimate analysis like that from CBPP, IPP’s Peter Fisher and other respected Iowa economists, to be front and center,” said Mike Owen, executive director of IPP.

The Iowa Fiscal Partnership has identified keys to responsible tax reform, which includes eliminating federal deductibility as Governor Reynolds has proposed to reduce tax rates that appear higher than they are — but only if that change comes without a reduction in revenue, and does not increase the overall inequity in Iowa taxes that favors the wealthy.

“At a time of budget shortfalls, we cannot afford to lose more resources for schools and vulnerable families, and in any case we need to introduce more fairness in taxes to reflect Iowans’ ability to pay,” Owen said.  “Currently, the bottom 80 percent of Iowa working-age households pay — on average — 10 percent of their income in state and local taxes, and the wealthier pay steadily less. New income-tax cuts at the top would make this worse.”

CBPP’s research found that Kansas’s tax cut experiment was a valid — and failed — real-world test of supply-side economics for the following reasons:

  • Kansas sharply curtailed spending after enacting the tax cuts. Some argue that the tax cuts didn’t produce economic growth because lawmakers didn’t follow it with spending cuts, but this does not match reality. State spending was tightly restricted in the aftermath of the tax cuts. Between fiscal years 2012 and 2016, Kansas’s General Fund spending rose only 0.3 percent without adjusting for inflation and fell 5.5 percent after adjusting for inflation and population growth. If Kansas had cut spending more, its economic and job growth would have been even more lackluster as teachers, nursing home aides paid with Medicaid funds, private road maintenance contractors compensated with Highway Fund dollars, and others employed by the state would have had less money to spend locally.
  • Downturns in agriculture, energy, and airplane manufacturing don’t explain the tax cuts’ ineffectiveness. Some have cited the decline of oil, gas, and commodity prices, as well as a decline in Kansas’s energy sector to help explain the state’s poor economic performance. But the aircraft manufacturing and energy sectors are too small a part of the Kansas economy for their downturns to appreciably affect the state’s job creation record. The two sectors lost 2,500 and 3,100 jobs, respectively, between 2012 and mid-2017 — well under 1 percent of the state’s total employment. And, while combined earnings of farmers fell significantly in Kansas in the years following the tax cuts, all of the state’s neighbors except Nebraska had even bigger declines, as did the country overall. Despite this, Kansas’ job growth still lagged behind all but one of its neighbors.
  • Kansas’s exemption of “pass-through” income from the income tax led to only modest tax avoidance. The exemption for pass through income — that is, income from businesses such as partnerships, S corporations, and sole proprietorships that filers report on individual tax returns — did create an incentive for various kinds of tax avoidance strategies. But the Kansas Department of Revenue’s own data shows that there was, at most, only a small and temporary uptick in the number of pass-through business formations that might have been due to tax avoidance.

“Some will continue to argue that Kansas’s fiscal and economic struggles after its tax cuts aren’t relevant to other states, but plenty of evidence says that they are. Other states should be very cautious in pursuing tax cuts in the name of supply-side economics because time and time again we have seen this approach fail,” said Michael Mazerov, author of the report.

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Rest/best/worst of the story

Posted January 2nd, 2018 to Blog

redink-capitol

Senator Joni Ernst is using Facebook to gin up support for the new tax bill. It is a one-sided picture, to say the least.

So, what does it really mean for Iowans that the tax bill is law?

  • Middle and low-income Iowans will see temporary ​tax cuts in the short term that are ​drastically smaller​​ than those high-income taxpayers will see — and these will be taken away or turned into tax increases by 2027 to help pay for permanent tax cuts for corporations.
  • Millions of people nationwide will lose health insurance coverage as elimination of the individual mandate drives up costs for all.
  • The wealthy will keep more millions of dollars that have never been taxed due to further exemptions in the estate tax.
  • The Child Tax Credit will be extended to affluent families who do not need assistance, while 86,000 children in working families in Iowa receive a token increase of $75 or less — both expansions to evaporate after 2025.
  • Businesses will get enormous, permanent tax breaks with no requirements to create jobs.

Some might recall a longtime radio commentator, Paul Harvey, and his “Rest of the Story” pieces. The points above are the “rest of the story” that you might not hear from backers of the latest tax giveaway in Congress. You might be OK with them and call them the “best of the story.”

Or, you might be concerned about the impact they will have on U.S. and Iowa families, on national debt and new challenges they bring to the safety net, and call them the “worst of the story.”

But they are the real story, and they should not be forgotten as the spin continues.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

Careful backpedaling on estate tax, Senator

Posted December 5th, 2017 to Blog

One of the problems with backpedaling is if you don’t do it well, you trip. Somebody catch Senator Chuck Grassley.

As has been widely noted across social media — a good example is this post in Bleeding Heartland — The Des Moines Register quoted Iowa’s senior senator that estate tax repeal would reward “people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.

Ironically, while promoted as a pullout quote in the packaging of the story, the “booze or women or movies” comment came quite low in the piece. More substantive problems with the Senator’s rationale for opposing the estate tax were presented higher: specifically his continued insistence that this has something to do with the survival of family farms.

It. Does. Not.

10-30-17tax-factsheet-f1Senator Grassley has promoted this unsupportable justification for his position for many years. This New York Times piece from 2001 includes it.

And he renewed it again Monday in claiming his “booze or women or movies” comment was out of context, taking the opportunity to promote his spin again — and again getting wrong the facts behind his fundamental objection: the impact on farms.

There, he claimed in the story that he wants a tax code as fair for “family farmers who have to break up their operations to pay the IRS following the death of a loved one as it is for parents saving for their children’s college education or working families investing and saving for their retirement.”

While only a handful might actually have to pay any tax at all because of the generous exemptions in the estate tax — shielding $11 million per couple’s estate from any tax — no one in the many years the Senator has pretended this is an issue has been able to cite a single farm that had to break up because of the tax.

Contrast his current statements with the one he made in the wake of Hurricane Katrina in 2005, when there was a move afoot to slash the estate tax. And — as shown by the graphs below — even fewer estates in Iowa and the nation are affected by the estate tax now than at that time, when he said “it’s a little unseemly to be talking about doing away with or enhancing the estate tax at a time when people are suffering.”

The tax legislation in Congress will cause millions to suffer, directly through a loss of health insurance, some with actual tax increases even at middle incomes, and over time with a loss of critical services that help low- and moderate-income families just to get by.

Furthermore, any middle-income tax cuts expire in 2026 while high-income benefits and corporate breaks remain in effect. And then, even more will suffer.

Questions we have been asking for years remain relevant today, and each time pandering politicians take a whack at the estate tax:

  • Is it a greater priority to absolve those beneficiaries of the need to contribute to public services — and make everyone else in the United States borrow billions more from overseas to pay for it — or to establish reasonable rules once and for all to assure the very wealthiest in the nation pay taxes?
  • Do we pass on millions tax-free to the heirs of American aristocracy, or do we pass on billions or trillions of debt to America’s teen-agers?

We all shall inherit the public policy now in Congress. As long as the estate tax exists, it remains the last bastion assuring that at least a small share of otherwise untaxed wealth for the rich contributes to the common good, or at least toward paying the debt they leave us. Fear not for their survivors; they still will prosper handsomely.

2017-owen5464Mike Owen is executive director of the Iowa Policy Project, a nonpartisan public policy research organization in Iowa City. Contact: mikeowen@iowapolicyproject.org

Editor’s Note: This post was updated Dec. 6 with the graphs showing the decline in Iowa estates affected by the estate tax.

Beware corporate tax con job

Posted November 29th, 2017 to Blog

EDITOR’S NOTE: A version of this piece appeared in the Wednesday, Nov. 29, 2017, Cedar Rapids Gazette. Online version here.

Those pushing the tax bill now before Congress have a tough job. They have to convince ordinary taxpayers that they should embrace a bill that gives massive tax cuts to corporations and rich people, raises the national debt, results in millions losing health care, and sets the stage for huge cuts in programs, from Medicare to food assistance to education.

Their principal argument — that trickle-down economics is going to bestow jobs and wages on the middle class — is a con job.

Why do U.S. corporations need a tax cut when they are already paying taxes at a lower overall effective rate than in other advanced economies? They don’t.

You have probably heard just the opposite: that our rates are the highest in the world, a skewed view that ignores only the nominal tax rate is higher than most other countries. In fact, a myriad of deductions and loopholes brings the actual rate corporations pay way down, to below average.[1]

The huge deficits created by this tax bill — $1.5 trillion over 10 years — would push interest rates up and would choke off investment, counteracting any tendency of the corporate tax cuts to increase investment. Furthermore, an examination of developed economies across the globe shows that corporate tax cuts over the past 15 years have not produced growth in capital investment. [2]

Nor is a cut in corporate tax rates going to lead to wage increases. U.S. corporate tax rates were slashed in the late 1980s, and in the years since we have seen the historic link between productivity and wages broken. In other words, the last corporate tax cut ushered in a period of stagnant wages, even though productivity continued to rise.

Think of it this way: Why would we expect tax cuts now would lead to corporations sharing productivity growth with workers through higher wages? It hasn’t been happening for the past 30 years.

It gets worse. The bill is supposed to be only $1.5 trillion because there are other tax increases that hold down the total. However one of those offsets won’t work as planned. A minimum tax on overseas profits, which sounds like a good idea, will actually provide an incentive for multinational companies to move American jobs overseas in order to escape the new tax.

Those who want us to believe in the magic of trickle-down economics are trying the oldest tactic in the books: misdirection. Focus on this shiny bauble — a small cut in your taxes in the short run — and this pie-in-the sky promise of jobs and higher wages; pay no attention to the billions of dollars going to corporations and the rich, and the inevitable cuts in programs, from health care to education to Medicare.

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. pfisher@iowapolicyproject.org

 

[1] U.S. corporation income taxes amount to 2.2 percent of GDP, while other advanced economies (the remaining countries in the Organization for Economic Cooperation and Development) collect 2.9 percent of GDP in corporate taxes. See “Common Tax ‘Reform’ Questions, Answered.” Josh Bivens and Hunter Blair, Economic Policy Institute, October 3, 2017.

[2] Josh Bivens, “International Evidence Shows that Low Corporate Tax Rates are not Strongly Associated with Stronger Investment.” Working Economics Blog, Economic Policy Institute, October 26, 2017.

Congressional tax bills: New loopholes

Posted November 22nd, 2017 to Blog

To most people, tax reform means closing loopholes. To those in Congress pushing an overhaul of federal taxes it apparently means the opposite. The House and Senate tax bills would reopen a number of loopholes used by high-income taxpayers to shelter income from tax, and create a huge new one. Without shame, they are calling this “tax reform.”

First, the new loophole. This one is doubly ingenuous, touted as a “reform” that helps “small business.” It allows individuals who receive income from a business that they own (if that business is not a corporation) to pay no more than the 25 percent individual income tax rate on that income. Here’s the thing: Most truly small businesses are already in that tax bracket, or lower, because they have less than $250,000 in business income; these taxpayers get no benefit from the bill.

So who would benefit? Almost 70 percent of this “pass-through” income goes to the richest 1 percent of taxpayers. They are hedge fund managers and real estate developers who own a non-corporate business, and who now pay tax at one of the top rates for individuals (up to 39.6 percent). This pass-through loophole is no help to small businesses; it is a gift to the rich, and a very costly one indeed: $597 billion over 10 years.

Now for the loopholes re-opened. If you are an ordinary, hard-working middle income taxpayer you probably have never had to worry about something called the Alternative Minimum Tax (AMT). That’s because you didn’t have income from incentive stock options, you didn’t take an oil depletion allowance, you didn’t claim net operating losses. In short, you didn’t have the kinds of income that escape taxation. You had mostly wages and salaries, which are fully taxed.

The AMT originated in the late 1960s and was supposed to ensure that those with preferentially treated income or large deductions paid at least some minimum amount of income tax. Donald Trump, for example, was required to pay an additional $31 million in 2005 because of the AMT. (We know this because of the partial tax return for that year that was made public.) Without the AMT, tens of millions of his income would have escaped taxation.

The AMT does need fixing; it does not succeed in taxing all kinds of preferential income, and many of the very rich still find ways to avoid tax. But instead of fixing it or replacing it with something better, this bill would just eliminate it permanently, at a cost of $696 billion over 10 years, a big chunk of the total cost of the bill.

In the name of tax reform, congressional Republicans are opening the loophole floodgates for high-income taxpayers; these two measures will cost $1.3 trillion. That means another $1.3 trillion in federal deficits, or in cuts to programs like Medicare and food assistance, to keep wealthy donors happy.

Peter Fisher, research director of the Iowa Policy Project

pfisher@iowapolicyproject.org

The Case of the Missing Middle-Class Tax Cut

Posted November 22nd, 2017 to Blog

If Sherlock Holmes were a United States Senator, he’d be on it: “The Case of the Missing Middle-Class Tax Cut.”

We’ve all heard about the suspicious tax cut. It’s been in all the papers, all the social media posts, anywhere the spin merchants can find a way to promote the idea that the proposed massive and permanent tax-cut giveaway to millionaires, billionaires and corporations is somehow a “middle-class tax cut.”

Puh-leeze.

No reliable information can justify the billing. Middle-class and lower-income taxpayers ultimately will — on average — pay more as a result of this legislation if it becomes law.

In Iowa, the Institute on Taxation and Economic Policy (ITEP) has shown that despite some minor benefits upon enactment, the bill when fully phased in will actually result in a tax increase, on average, for the bottom 60 percent of Iowa taxpayers. Higher up the income scale, tax cuts will remain. (In the graph below, average tax changes for the bottom three quintiles of Iowa taxpayers are shown as increases, above the line.)

Someone in Iowa making $1.5 million in 2027 would get about a $4,800 benefit under the ITEP analysis — not a lot to people at that income, maybe a good payment on luxury box rent at the ballgame.

But that break for the top 1 percent would total about $68 million — a hit to services on which the money could be spent on behalf of all.

Millions of Americans — an estimated 13 million — would lose health insurance under this bill, a large share of those not giving up insurance voluntarily, but because they could no longer afford it.

Billion-dollar estates that already have $11 million exempt from tax under current law would see a doubling of that exemption, as if the first $11 million free and clear is not enough while the millions of working families struggle to get by, some at a $7.25 minimum wage that has not been raised in over eight years (in Iowa, 10 years).

A Child Tax Credit designed to help working families with the costs of raising children would be extended to families earning $500,000 a year — as if those families need the extra help, when families making $30,000 get little from the deal. By the way, that is one of the changes billed as a middle-income break, and even it would expire in 2025.

There is no expiration, meanwhile, on the estate-tax break or on new giveaways to corporations.

If you’re looking for a real middle-class tax cut in this legislation, you’d better put Sherlock Holmes on the job. Even then, anything you find has an expiration date, plus tax increases. And the millionaires’ cuts that remain will clamp down on resources for the essential things that government does to protect and assure opportunity for us all, and our nation’s future.

You cannot afford to do both — provide critical services and also cut resources to pay for them.

It’s elementary.

Mike Owen, executive director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

Red ink, inequity and pain

Posted November 14th, 2017 to Blog

UPDATED NOV. 20*

redink-capitol

To dive into an ocean of red ink for a tax cut that will do little to boost the economy is one thing. To pretend it benefits middle-class families is, at the least, cynical.

It is impossible to view either the Senate or House tax bills moving in Washington as anything but a boost to the wealthy.

Responsible analysis by respected research organizations makes this apparent. The wealthy don’t just do the best in this legislation — they are the clear focus of it.

New data released by the Institute on Taxation and Economic Policy offer several key illustrations of how the Senate Republican proposal approved last week by the Finance Committee, which includes Iowa Senator Chuck Grassley, will affect Iowans:

  • The middle 20 percent of families, people making between $59,300 and $87,080 (average $72,400) receive only 12 percent of the overall tax cut in 2019. Meanwhile, the top 20 percent receive more than half — 62 percent.
  • In 2019, the top 1 percent has a larger overall tax cut than the bottom 60 percent, $483.1 million (average $32,200) to $407.9 million (average $450).
  • In 2027, as the small benefits at the middle phase out and structural changes at the top are made permanent, the bottom three-fifths of Iowa taxpayers will see $58.7 million in tax increases averaging $60, while the top 1 percent will keep an average $4,770 tax cut at a cost to the treasury of $67.7 million.

Those who are promoting this bill should at least have the honesty to call it what it is: a new handout to the wealthy — one that everyone will pay for, to the tune of $1.5 trillion over 10 years, and an almost certain loss of critical services that benefit all.

* Note: The original post from Nov. 14 has been updated with figures from the Institute on Taxation and Economic Policy analysis of the bill passed by the Senate Finance Committee.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

 

More debt, inequity and pain

​FOR IMMEDIATE RELEASE, Tuesday, Nov. 14, 2017

Senate tax plan: More debt, more inequity, more pain
Like House bill, Senate plan stacks the deck against services and opportunity

IOWA CITY, Iowa (Nov. 14, 2017) — Senate Republicans’ new tax proposal in Washington carries many of the same problems of equity and fiscal irresponsibility of the House plan.

“This plan is not only unbalanced. The scales are being tipped all the way over,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project (IPP). “Adding $1.5 trillion in debt at the almost certain cost of food and health assistance for the vulnerable and educational opportunities across the board — really, did anyone promote doing that in the last campaign? Did anyone vote for it?”

In addition, the nonpartisan Institute on Taxation and Economic Policy has released new estimates showing that for Iowa, well over half of the tax reductions would go to the top 20 percent in both 2019 and 2027 under the Senate plan. Some taxpayers would pay more, but very few of those at the top — 2 percent — while in both years, 13 percent of the middle one-fifth of taxpayers would pay more. [Find the full ITEP report here]

“Overall, these are especially troubling implications for Iowa, with daunting fiscal challenges coming in only two months with the new legislative session. Besides penalizing low-income families at a steep cost to all taxpayers, this plan would shift new costs to the state, which is becoming a common theme in Washington,” said Mike Crawford, senior policy associate for the Child & Family Policy Center (CFPC) in Des Moines.

“This Congress, many will recall, also attempted to shift hard choices and big costs to the states with health-care proposals that, thus far, have been unsuccessful. The tax choices being offered in the House and Senate threaten state resources and services as well.”

Specifically, the Senate bill would eliminate the federal income tax deduction for state and local taxes paid. The largest beneficiaries of this deduction are high-income taxpayers.

“This change could pressure states to make new reductions in taxes for those taxpayers — who already pay a smaller share of their income in state and local taxes than do low- and moderate-income taxpayers,” Owen said. “Furthermore, this would cut into revenues, which already are running short of expectations and pose difficult choices for state legislators in January.”

The bill would provide nearly half of total tax benefits to the top 1 percent of households, which would receive tax cuts averaging over $50,000 by 2027. In addition, the legislation would:

  • Skew a critical tax credit now targeted for low-income working families, the Child Tax Credit (CTC), to couples with incomes between $110,000 and $1 million. While extending this benefit to those higher-income families, it would deny any significant help ($75 or less) to 10 million children in low-income working families. The Center on Budget and Policy Priorities estimates that in Iowa, the House bill would totally leave out 89,000 children in those working families, and either fully or partially exclude 203,000 from the bill’s increase in that benefit.
  • Further reduce the federal estate tax, which already carries significant exemptions from tax for the very wealthy — $5.5 million per person and $11 million per couple. Because of these already generous exemptions, the estate tax already only affects two-tenths of 1 percent of estates nationally and in the state of Iowa. It is the only way a small amount of tax is collected on certain income. (The House bill would fully phase out the estate tax.)
  • Cut taxes for millionaire households by lowering the top income tax rate compared with the House bill, and by providing a deduction for “pass through” businesses that mean big tax cuts for high-income households.

“Elements of the Senate bill make only slight improvements to the House bill, and like the House bill it is heavily skewed to the wealthy,” Owen noted.

“Take the example of the Child Tax Credit. This program is intended to be a work support, to assist people in low-paying jobs. In our low-wage state especially, it makes no sense to be extending this credit to wealthy families when low-income families are being left out of an improvement.”

Unlike the House bill, the Senate bill would not cut the wind production tax credit, which has been critical in making Iowa a leader in clean energy.

IPP and CFPC are nonpartisan, nonprofit Iowa-based organizations that collaborate as the Iowa Fiscal Partnership on analysis of public policy choices affecting Iowans, particularly those in working families and at low incomes. Find reports at iowafiscal.org.

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Against tax spin: Wealthiest benefit

​IFP News

Against the spin: Wealthy benefit most from House plan
In Iowa and nationwide, federal tax proposal skewed to benefit millionaires

 

IOWA CITY, Iowa (Nov. 6, 2017) — New national and state-level analysis shows the wealthiest taxpayers are the biggest beneficiaries of the House tax reform proposal, exposing exaggerations of middle-income benefits in a package that could threaten critical services to low- and moderate-income families.

The Institute on Taxation and Economic Policy (ITEP — itep.org) released its analysis today. Its national findings follow estimates by Congress’ nonpartisan Joint Committee on Taxation late last week that also show benefits of the plan are heavily skewed to the wealthy.

Among ITEP’s findings for Iowa:

  • In 2018, the middle 20 percent of Iowa taxpayers will see an average tax cut of $790, compared to a $36,100 tax cut for the top 1 percent, a benefit 46 times higher for the very rich, whose annual income averages $1.2 million.
  • The inequity grows by 2027, as the average middle-income cut falls to $340 (less than half of the 2018 figure) while the very rich get a $48,520 tax cut — a third greater than in 2018, and a benefit 143 times greater than the middle-income average. (graph below)
  • The top 20 percent take 61 percent of the tax benefit in 2018, and 69 percent of the tax benefit in 2027.
Tax Cuts Skewed to the Wealthy in House Plan, 2018 and 2017
171106-ITEP-taxreform
Source: Institute on Taxation and Economic Policy
 
“So much for boosting the middle class. The rich in Iowa do far better than middle and lower-income taxpayers in our state under the House tax plan,” said Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP), part of the Iowa Fiscal Partnership with the Child & Family Policy Center (CFPC) in Des Moines.

CFPC interim director Anne Discher agreed.

“While focusing rightly on who actually benefits from this legislation — and who does not — we should not miss the impact on services and the difficult choices that will be forced upon states by federal tax cuts,” Discher said. The tax package will cost an estimated $1.5 trillion over 10 years.

Discher agreed with ITEP that low- and middle- class families likely will pay for these tax cuts for the wealthiest through reduced investments in education, health care, infrastructure, scientific research, environmental protection, and other priorities.

The ITEP analysis examines the difference in tax benefits at various incomes both in 2018 and 2027.

Fisher noted the ITEP analysis shows the legislation does not mean tax cuts for everyone, and in some cases means tax increases. Five percent of all Iowa taxpayers would see a tax hike in 2018, rising to 13 percent in 2027, according to ITEP.

“This plan benefits the wealthy immediately, but disguises even greater benefits and disparities that will become apparent well after the next election,” said Mike Owen, executive director of IPP.

“What might appear to some to be a substantial benefit at the middle next year — an average tax cut of $790 — will vanish by more than half in 2027, as even greater benefits to the very wealthy are phased in over the decade. The benefit at the top 1 percent, on average, is projected to grow from a $36,100 tax cut in 2018 to $48,520 in 2027.”
The ITEP analysis shows, in fact, that the value of the average tax benefit drops over the nine years for every income group in Iowa except the very top 1 percent. But this bias to the very rich would take place long after the 2018 and 2020 elections when policy makers might have to defend them.

“A closer look at the details of this tax plan indicates that lawmakers are most serious about ensuring that they lower tax bills for the highest-earning households,” said Alan Essig, executive director of the Institute on Taxation and Economic Policy.

ITEP and others have noted specific disparities in the treatment of various taxpayers under the proposed bill.

For example, after five years, the bill would eliminate a $300 non-child dependent credit that benefits low- and moderate-income families while reducing and eventually eliminating the estate tax, which benefits only the wealthiest two-tenths of 1 percent of estates in Iowa and the nation.

“The estate tax assures at least some taxation of extremely large amounts of income that otherwise are never taxed,” Owen said. “The estate tax already is effectively very low for even enormous estates — the first $5.5 million of an individual’s estate, or $11 million of a couple’s estate, is exempt from tax. And no family inheriting an estate of less than those amounts faces any estate tax at all, so the scare tactics that are used with small businesses and farm families are very misleading.”

The Iowa Fiscal Partnership is a joint public policy analysis initiative of the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org.

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