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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.


What happened to infrastructure plans?

Posted December 1st, 2017 to Blog

At the beginning of this year there was talk of possible bipartisan legislation to repair America’s crumbling infrastructure.

Both candidates for president had promised a new emphasis on repairing the nation’s roads, rails, sewage treatment plants and airports. The number kicked around during the campaign was often $500 billion. After President Trump won, he pushed up the rhetoric and spoke of a $1 trillion plan.

If Congress passes the tax bill now being considered, there will be little room in the budget to pay for present services, as we have emphasized here at IPP. How can this nation also invest in the things that will certainly produce jobs and make the nation more competitive?

The chances for implementing an ambitious infrastructure spending plan seem remote, as Congress is on course to add $1.4 trillion or even more in deficit spending over the next 10 years.

Already, federal help to improve drinking water and wastewater systems has been on the decline. How much appetite will there be spend more on what most agree is necessary construction when taxes to pay for those expenditures decrease so drastically?

When there is no appetite for spending, state governments sometimes resort to tax credits. That seems unwieldy in this case and, in the next few weeks, tax credits will lose much of their value anyway. When taxes are lower, there is less to gain by giving credits.

The new tax cut will give a benefit just for being a corporation or for being wealthy. Why invest in something productive when you are given a reward simply for “being?”

David Osterberg co-founded the nonpartisan Iowa Policy Project and remains its lead environment and energy researcher. dosterberg@iowapolicyproject.org


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.

Senate bill: Short of rhetoric

Posted November 28th, 2017 to Blog

GUEST BLOG
Despite Child Tax Credit change, Senate Tax Bill Doesn’t Live Up to Rhetoric in Supporting Families with Children

One of the few provisions in the proposed Senate tax bill that has bipartisan support is increasing the Child Tax Credit (CTC), which has been designed to better reflect the costs of raising children. It has been cited as a major benefit to working and middle-class families with children.

Like other provisions, however, this change is done in ways that provide almost no help to working low- and moderate-income families, while providing huge breaks for very wealthy ones. For middle-income families, the gains from a higher child tax credit are mostly offset by losses in personal exemptions, and some middle-class families would actually pay more under the proposals than under current law.

The Senate and House versions both provide information needed to calculate the taxes different tax filers would pay on their 2018 income (the year the changes go into effect) and to then compare these with the taxes they would pay under current law.

In the Senate version, the partially refundable portion of the CTC is unchanged, except that it would be indexed for inflation going forward, increasing to $1,100 in 2018. The nonrefundable credit is increased by $1,000 per child, making a maximum credit per child of $2,000 (the House version provides only an additional $600 credit, in addition to also indexing the partially refundable portion to $1,100). Both bills extend eligibility for higher income families (from a current phaseout beginning for married joint filers at $110,000 of adjusted gross income to $500,000 in the Senate version and an even higher level in the House version).

Performing the comparison of what tax filers in 2018 would experience from the CTC increase, a single mother with two children working full time and making a little above the minimum wage, $16,000 per year, gets no benefit under the House version and only $75 under the Senate version, compared with current tax law. A married couple with two children making $29,600 only receives the additional $100 per child of the refundable credit under the Senate and House versions. That the CTC provisions largely leave behind low and moderate-income families is particularly unfortunate, as these are the families that live paycheck to paycheck and could most benefit from additional support in raising their children.

Meanwhile, a married couple with two children making $300,000 per year gets the full benefit of the tax credits, $4,000 for the two children under the Senate version. This is on top of a tax cut from other changes in the tax code of at least $8,639 (which would be more if the family has extensive itemized deductions or tax-exempt income). Overall, this family is at least $12,639 better off after doing its taxes, compared with current law, $4,000 due to its new eligibility for the CTC.

For simplicity, these examples assume that all income is earned income and that the filers all take the standard deduction. If, because of buying a home, paying state and local taxes or a combination of the two, middle-income taxpayers now itemize their deductions, the increase in the standard deduction may not help at all and the loss of personal exemptions may mean they pay more taxes.

A married couple starting out with a young child and $60,000 of income, for instance, who now claims $24,000 as an itemized deduction ($18,000 in mortgage interest and property taxes, $4,000 in state and local taxes, and $2,000 in charitable contributions or other deductions) would owe $359 more in federal taxes under the Senate version. Although the family would benefit from the increase in the CTC, that would be more than offset by other changes, such as the loss of personal exemptions.

The chart below shows the specific impacts on these families of the changes in the child tax credit itself but also the changes of the overall tax changes to their individual income tax:

Tax proposals should be examined both in terms of individual provisions and in terms of their overall impact. On the former, under the Senate version the benefits of raising the Child Tax Credit are highly skewed toward the highest income tax-filers. This needs to change, by making the CTC refundable and not extending it so dramatically to the highest income families.

On the latter, the overall structure of the tax provisions largely negate the positive impact expansions of the CTC have for many middle-income families, while bestowing even more benefits on high income ones. Tinkering with the CTC without major changes in other provisions in the tax proposal cannot correct these flaws.

Rather than adding CTC provisions to a bill with other fundamental flaws, Congress should start with how it can make the CTC better reflect the cost of raising families. There exist different bipartisan proposals that would do this, but the proposal before Congress goes in the opposite direction.

Charles Bruner of Ames, a former member of the Iowa House and Senate, is director emeritus of the Child and Family Policy Center in Des Moines. CFPC, he worked with the Iowa Policy Project to form the Iowa Fiscal Partnership. Find his commentary on current issues at childequity.org. Contact him here.


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

 


Another reason to support IPERS

Posted November 2nd, 2017 to Blog

An estimated 103 beneficiaries of the Iowa Public Employees’ Retirement System (IPERS) were recent victims of identity theft — about 0.09 of 1 percent of all retirees receiving IPERS benefits. The system reacted quickly and transparently to support its retirees.

IPERS is cautioning all beneficiaries to make sure their October payments were made properly, and has issued new payments to those affected by this theft, in which criminals used personal information to redirect payments for a group of retirees.

All of this leaves a burning question for 2018: How bad might this have been without the IPERS system looking out for these retirees?

Put another way, what if all 115,000 of IPERS retiree beneficiaries and 350,000 IPERS members overall had been forced to private retirement plans, instead of the traditional pensions they have, as some lawmakers and hard-right activists would do with the future of IPERS?

By early news coverage, IPERS appears to have reacted very quickly to handle this security breach. IPERS had the backs of its beneficiaries, funds recovered and benefits on track to those counting on them, according to these early accounts.

It is unfortunate that this is not the emphasis of such stories. It should be. Identity attacks and threats are commonplace, and how the retiree’s account is protected is a critical issue.

Could you count on the manager of your private retirement account, such as a 401k, to respond so quickly, and with such accountability? Maybe. 

The new story about this identity theft assault on IPERS beneficiaries is one more reason — along with the positive performance of IPERS investments and retirement security offered by the program — to be putting the brakes on any attempt to rush through major changes to IPERS.

Privatization advocates make ideological arguments. In practical terms proposed changes would allow private outfits to profit unnecessarily from comparatively unaccountable management of public workers’ retirement investments, causing extra costs to employees and perhaps to the state.

So-called “reforms” have never been about making retirements more secure for those whom we as taxpayers employ to provide essential public services. This security, not private profit, is fundamental to the purpose and commitment of IPERS.

Mike Owen, executive director of the nonpartisan Iowa Policy Project

mikeowen@iowapolicyproject.org


Tax Foundation’s Waste of Time Index

Biz-tax rankings unworthy of attention

The Tax Foundation today released its 2018 State Business Tax Climate Index (SBTCI). All the same problems with this unreliable measure remain:

  1. The State Business Tax Climate Index purports to measure a state’s “tax competitiveness” but the index turns out to bear very little relationship to what businesses actually pay in taxes in one state vs. another. Read more.
  2. Scoring well on the SBTCI does not mean a state will experience more growth; the Tax Foundation provides no evidence that its index actually predicts growth and research has generally found that it does not. Read more.
  3. The index is a combination of over 100 components of state tax systems, giving substantial emphasis to some components that cannot plausibly affect tax competitiveness, while ignoring features that have a large impact on business taxes (single-factor apportionment and deduction of federal corporate income taxes). Read more.

The methodology is unchanged from the 2017 edition, with only slight changes in the weights applied to the five sub-indexes and a couple of tweaks to specific taxes that affect a handful of states.

Peter Fisher, research director of the Iowa Policy Project.

pfisher@iowapolicyproject.org

See IPP’s Grading the States website for more insightful analysis of business tax rankings — www.gradingstates.org


About those 10 reasons, Senator …

Posted September 22nd, 2017 to Blog

Senator Chuck Grassley of Iowa has made the point himself: The Cassidy-Graham bill to repeal the Affordable Care Act (ACA) has many deficiencies.

“I could maybe give you 10 reasons why this bill should not be considered,” he told Iowa reporters.

So, let’s look at some of the reasons, on the merits, why people might have concerns about Cassidy-Graham.

  1. People with pre-existing conditions would lose access to health care. Protection of these people assured now under the ACA would be left to state decisions, with states already cash-strapped.
  2. Many who became eligible for coverage through the Medicaid expansion of the ACA would lose it. In Iowa, about 150,000 people gained coverage by this expansion.
  3. It would change Medicaid expansion to a block-grant program that provides states no flexibility to deal with recessions or prescription drug price increases.
  4. Medicaid for seniors, people with disabilities, and families with children would be capped on a per-person basis. Anything higher would be left to the states to provide. There is neither any assurance states would want to do that, or even be financially able to do so.
  5. Iowa would be marched to a $1.8 billion cliff in 2027 under this bill, with federal support dropping sharply. For context, that is the equivalent of about one-fourth of the current state budget.
  6. Millions would lose insurance coverage. While we’re still waiting for the estimate from the Congressional Budget Office, past repeal proposals show this. And, since this bill offers nothing beyond 2027 for the Medicaid expansion, via block grant or otherwise, the prospect of 32 million people losing coverage (as demonstrated in estimates in previous ACA repeal legislation) is very real.

In Iowa? The graph below shows how Iowa’s uninsured population has dropped with the advent of the ACA, or Obamacare. Census data show uninsurance in Iowa dropped by nearly half in just three years, by about 116,000 — from 8.1 percent uninsured in 2013 to 4.3 percent in 2016.

So, this is a good start on why Iowans might be concerned about Cassidy-Graham — a last-ditch effort to rush into law radical changes in the way millions nationally and over 100,000 in Iowa gained access to health care in just three years.

We invite Senator Grassley to add to the list and get us to the full 10 reasons he suggested that might cause concerns about this bill.

Or better yet, maybe together in a deliberative process that involves everyone, we can come up with a list of 10 things that any health care policy should address.

Surely the list would include insuring more people, assuring more with practical access to health care when they need it, improving public health and reducing costs. We invite Senator Grassley to that discussion.

Mike Owen, Executive Director of the  Iowa Policy Project
mikeowen@iowapolicyproject.org


Protect Iowa taxpayers from bad spin

Posted August 30th, 2017 to Blog

“Protecting Iowa’s taxpayers,” reads the headline on the newspaper column, but the column contradicts that.

On the pages of major state newspapers this week, Iowans for Tax Relief (ITR) is offering its predictable and tired promotion of tax and spending limitations that are neither necessary nor fair.

Instead of protecting taxpayers who live in Iowa and do business here, these gimmicky limitations promote an ideological agenda that fails to offer prosperity — ask Kansas — and is a poor solution to imagined problems invented by its authors.

The limits advocated by ITR never are necessary or fair, but this is especially so where we see K-12 school spending held below needs, where higher-education spending is cut and tuitions raised, and where worldwide corporate giants are taking bites out of Iowa millions of dollars at a time — over $200 million in the case of Apple last week.

By all means, let’s protect taxpayers from thumb-on-the-scale rules that give a minority viewpoint a decided and sometimes insurmountable advantage over the majority. The big money put behind these ideas make elections less meaningful, and erode Iowans’ ability to govern themselves.

The real path to prosperity for Iowa is a high-road path that rests upon sensible investments in education and public infrastructure that accommodates commerce and sets a level playing field for business and individuals. It means promoting better pay to keep and attract workers who want to raise their families here, and sustaining critical services.

Time and time again, we and others have shown irrefutably that Iowa is a low-tax and low-wage state. We already are “competitive” to the small degree that taxes play a role in business location decisions; even conservative analysts such as Anderson Economic Group and Ernst & Young put Iowa in the middle of the pack on business taxes.

Suffice it to say, you are being peddled a load of garbage by the far right and the privileged, who take what they can from our public structures and policies, and attempt to deny others not only public services, but also a say in the funding of programs that promote opportunity and prosperity for all.

The same suppression mindset prevailed in the Iowa Legislature in 2017 as a majority bullied public workers and decimated workers’ rights. Now they are taking on tax policy in 2018, plus the possibility of new assaults on retirement security and renewed neglect of our natural assets of air and water.

Shake your head at the headlines, throw a shoe through the TV if you must, but only by engaging these issues at every step of the political process will we turn Iowa back from our low-road course.

This is the battle of the 21st century. We are living it. May we survive it.

Mike Owen, executive director of the nonpartisan Iowa Policy Project

mikeowen@iowapolicyproject.org