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Costly frills: Extending 529 deduction

A largely insignificant benefit to Iowans who already can afford private K-12 school

• Analysis of the proposed expansion of Iowa’s 529 program to K-12

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By Peter Fisher, Iowa Policy Project

The Governor’s Tax Plan (HSB 671) and the Senate-passed plan (SF2383) both would expand the current deduction for contributions to a college savings account — a 529 plan — by allowing the funds in those accounts to be used for private K-12 school tuition. It does this by conforming to the new federal definition of allowable withdrawals.

Conformity to the IRC here is something of a misnomer. A taxpayer who makes a contribution to a 529 plan receives a federal benefit: The interest or other earnings on the contribution are not taxed when the money is withdrawn to pay college education expenses. The tax advantage exists only to the extent that there is genuine savings involved over a period of time, with interest earnings or capital appreciation that would otherwise be taxed.

Iowa law currently goes beyond the federal law by allowing the taxpayer to deduct the contribution to the plan, up to a dollar limit of $3,239 per child per contributor, for the year when the contribution is made.[i] It thus provides an immediate tax benefit, which can be taken whether or not the funds are left in the account to earn interest. By conforming to the federal definition of what is an allowable use of 529 plans, Iowa would be extending this state deduction benefit to parents of children in private K-12 schools.

If the goal is to increase access to private schools, extending the 529 plan tax benefits is a very weak tool for several reasons:

  • Many low-income families will receive no benefit because even without the 529 deduction they have little or no taxable income. This will be even more common if a tax bill is passed that raises the Iowa standard deduction, because that would put many more families, primarily those with lower than average income, in the zero taxable income category where a further deduction is of no value.
  • Even for low-income families with taxable income the deduction will be worth very little and will not make private school tuition appreciably more affordable. Consider a family with $40,000 total income, taxable income of $30,000. The additional deduction for private school tuition would reduce their state income tax by just $210. Even a family with $80,000 total income and $60,000 in taxable income would save just $257 by taking the maximum deduction for one child of $3,239.
  • Fiscal impact estimates by the Iowa Department of Revenue indicate that 71 percent of the benefit of the 529 plan extension would go to the 20 percent of taxpayers with incomes above $100,000 per year — those who can afford private school tuition already.

Extending the 529 savings plan to cover K-12 private school tuition, in other words, is little more than a tax subsidy to parents already sending their children to private school, most of them with incomes well above the average.

The current 529 plan for college tuition does operate as a savings incentive for some. But there is no requirement that a family actually put money aside for future college expenses. A family with a college tuition bill due Sept. 4 can put $3,239 in a 529 plan on Sept. 3, and take it all out again the next day to pay tuition. When they go to pay taxes the following April, they will be able to deduct that $3,239 from their income just as if they had put it in a savings account years ago. Still, it is likely that most families use the 529 Plan today to save for higher education, particularly as those costs can be $10,000 a year for a state university and more for a private college.

The extension of the 529 tax benefit to K-12 tuition largely applies to people who already are enrolling their children in private school. Currently, there are about 32,600 K-12 students enrolled in private schools[ii] with parents of most of them paying tuition and also paying state income taxes. The extension of the 529 plan offers, in essence, a backdoor way for Iowa to subsidize this nonpublic education. There is little time to actually save for a child’s K-12 education, making it likely that this extension of tax benefits will simply be used to get an immediate taxpayer-financed subsidy to cover tuition bills of these 32,600 students.

Iowa already provides some support for nonpublic education through the Tuition and Textbook Credit (TTC), and the proposed bill does not appear to prevent double dipping. For example, a couple paying $6,000 in private-school tuition for their 10-year-old could each put $3,000 in a 529 plan, then take it out a few days later to pay the tuition bill. Come tax time, they could deduct the $6,000 on line 24 of the Iowa 1040, reducing taxable income by $6,000. Then on line 44 they could take the maximum Tuition and Textbook Credit (TTC) of $1,000, for the same tuition payment.

The Iowa Department of Revenue estimated that extending the 529 plan to K-12 education would cost the state $5.2 million in tax year 2019,[iii] while the State Treasurer’s Office put the estimate at $7.5 million.[iv] It would add to existing uses of the public’s tax subsidies for private education: the tuition and textbook credit, and the $12 million tax credit for contributions to private school tuition organizations. There are longstanding issues and concerns regarding the extent to which Iowa should provide any assistance to students enrolled in nonpublic education. This approach, however, adds administrative complexity and cost to the 529 program, reduces state revenue available for other needs, and adds to the subsidies of nonpublic education in a way that also disproportionately benefits high-income families. In terms of tax principles of fairness, simplicity, revenue adequacy, and public purpose, this extension of the 529 program fails on all counts.

[i] A married couple with two children, for example, could contribute $12,956 per year  (two contributors, times two children). In addition, grandparents or others could each contribute $3,239 per child, and would get the same Iowa tax benefit.

[ii] State Treasurer’s Office: “Expanding 529 State Tax Treatment to K-12.” January 19, 2018

[iii] Letter from the Iowa Department of Revenue, Research and Analysis Division, to the Legislative Services Agency, January 17, 2018.

[iv] State Treasurer’s Office: “Expanding 529 State Tax Treatment to K-12.” January 19, 2018


2010-PFw5464  Peter Fisher is research director of the Iowa Policy Project.

Don’t emulate North Carolina, either

Posted March 7th, 2018 to Blog

The ideologues advocating for large state income tax cuts haven’t given up defending the Kansas experiment, despite overwhelming evidence that it forced drastic budget cuts while doing nothing to stimulate growth. Now they would have us believe that North Carolina provides an even better example of the benefits of the tax-slashing strategy. It doesn’t.

Two recent analyses of the North Carolina tax cuts, which took effect in 2014, show pretty clearly that the cuts did not boost the economy, and that they will soon precipitate large budget shortfalls. Prior to the tax cuts, the state’s economy generally grew at a comparable rate to the surrounding states, despite North Carolina having higher personal income tax rates than its neighbors. And it outpaced the national economy, jobs in North Carolina growing at 5.8 percent from late 2001 through the end of 2013, compared to 4.2 percent for the nation.

Since the tax cuts took effect in 2014, has North Carolina’s economic performance become even more impressive? On the contrary; since 2014, North Carolina has lagged behind the nation in growth in jobs and GDP, and has also lagged behind neighboring Georgia and South Carolina.

The tax-cut advocates are fond of saying simply that since the tax cuts, North Carolina has experienced rapid growth. The state has certainly grown faster than Kansas, but nothing in the evidence suggests that the tax cuts boosted growth; in fact, relative to its neighbors and to the nation its performance declined after taxes were cut.

The North Carolina tax cuts were phased in from 2014 through 2019, and by next year will cost the state 15 percent of the general fund budget. Major fiscal challenges now loom on the horizon. The state’s budget analysts project a structural budget shortfall of $1.2 billion in 2020, with the shortfall rising after that.

Tax and budget cuts are a formula for decline, not prosperity. Over the past decade, North Carolina has cut per student funding for education — K-12 by 7.9 percent, higher education by 15.9 percent, when adjusted for inflation — and the tax cuts will make it difficult, if not impossible, to restore those funds, no less to increase its investments in the state’s children. They are putting the long-term prosperity of the state at risk.

These results are not surprising. Tax cuts have budget consequences; they do not pay for themselves through growth. In fact, the preponderance of serious research finds that the effects of state income taxes on state growth are negligible.

Let’s hope Iowa does not follow either Kansas or North Carolina down the path of chronic budget crises and underfunding of the state’s responsibilities for education, health and public safety.

Peter Fisher is research director of the nonpartisan Iowa Policy Project.

A poisoned process

Posted February 28th, 2018 to Blog

As early as today, a bill may be debated in the Iowa Senate to drastically slash revenue for public services — phased in at a cost of over $1 billion a year, or about one-seventh of the state’s General Fund.

The Senate bill, as does any legislation with a fiscal impact, comes with a “fiscal note.” This analysis by the Legislative Services Agency, using Department of Revenue data, was made available sometime late Tuesday. The legislation itself was introduced a week ago today, and passed out of subcommittee and full committee the following day.

The legislation is so complex that it took the state’s top fiscal analysts a week to put together their summary, which includes four pages of bullet points in addition to tables of data about various impacts. The nonpartisan analysis finds that the wealthiest individuals and most powerful corporations once again are the big winners.

The timing of the official fiscal analysis was only the latest example of cynical approach to public governing that has slapped brown paper over the windows of the gold-domed sausage factory in Des Moines.

This General Assembly was elected in 2016. It is an understatement to suggest that this legislation could easily have been developed through the 2017 legislative session or the months leading up to this session. The public who will be affected, and advocates across the political spectrum, could have weighed in, and independent fiscal analysis considered.

Many have tried to educate the public about what is at stake for Iowa — including the Iowa Fiscal Partnership, which among other activities brought in experts from Kansas last year to show what has happened there with similar tax slashing. IFP also offered a reminder in October of what real tax reform could include, and later about both open government and the folly of Kansas’ course. Last week, we warned about the fiscal cliff ahead.

Everyone knew the legislative leadership and Governor wanted to do something to cut taxes, but no specifics were available, just a couple of hints with no real context. The session opened in the second week of January, and it wasn’t until most had left the building on the second-to-last day of February that a fiscal analysis magically appeared.

With a more transparent and deliberate process, everyone — including and especially the legislators who will be voting on it — would have had a chance to get full information about its impacts.

Instead, it is being rammed through. Regardless of whether the legislation itself is good or bad, the process has poisoned it. And perhaps it has poisoned governance in Iowa for years to come.

There are elements of the commentary defending and opposing this legislation that show general agreement on two key points of what meaningful, responsible tax reform would entail. On both sides, there is recognition that:

•  removing Iowa’s costly and unusual federal tax deduction would enable a reduction of top tax rates that appear higher than they really are; and

•  corporate tax credits are out of control and costing the state millions outside the budget process, while education and human services suffer.

The process, however, has shielded from public view a clear understanding of how the specifics of this legislation would affect two principles central to good tax policy: (1) the purpose of raising adequate revenues for critical services, and (2) raising those revenues in a way that reflects ability to pay — basic fairness of taxation, where Iowa (like most states) has a system that shoves greater costs on low-income than high-income taxpayers.

It also has raised to the altar of absurdity a ridiculous image of the competitiveness of Iowa taxes, which independent business consultants’ analysis has shown to be lower than half the states and in the middle of a very large pack that differs little on the state and local business taxes governed by state policy. (chart below)


As the process moves from the Senate to the House, these concepts of good governance need to be central to timely debate, not just fodder for editorial pages afterward.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project, and project director of the Iowa Fiscal Partnership, a joint initiative of IPP and the Child & Family Policy Center in Des Moines.


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.


Related from Peter Fisher:

The Lessons of Kansas

The Problem with Tax Cutting as Economic Policy

Governor’s budget: More details needed

IFP Statement — IPP’s Peter Fisher: Eliminating federal deductibility and adding sales tax for online transactions are good starts. Still, many reasons to question Governor Reynolds’ plan.

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IOWA CITY, Iowa (Feb. 13, 2018) — The Iowa Fiscal Partnership today released the following statement from Peter Fisher, research director of the nonpartisan Iowa Policy Project, about Governor Kim Reynolds’ tax proposals.

Governor Reynolds today reinforced her commitment to eliminate federal deductibility, which has long distorted a clear picture of what Iowans pay in income taxes. Iowa is one of only six states that permit a state tax deduction for federal taxes paid, and one of only three that allow a 100 percent deduction. Ending that archaic provision is a good start.

So is her proposal to collect sales tax from online retailers, to level the playing field between national retail giants and brick-and-mortar Main Street businesses. But there is much to question.

Our initial review indicates her plan misses the mark of what is needed for true, responsible reform of Iowa individual income taxes, let alone the overall system that taxes lower-income Iowans more heavily than the wealthy.

State taxes need to be more fair to low-income Iowans and need to better assure adequate revenue for critical services, such as education. There is no assurance of the latter in the Governor’s plan, which promises cuts in income taxes by $1.7 billion by 2023 with no impact on expected revenue growth; this claim demands more information and scrutiny.

Past analysis has shown Iowa could eliminate federal deductibility and reduce its top rate of income tax below 7 percent while remaining revenue-neutral and — with the right combination of other changes — retain or enhance the fairness of the income tax. Missing from the plan is a crackdown on Iowa’s rampant spending on business tax credits and any effort to plug corporate tax loopholes, which could gain the state as much as $100 million.

The proposal acknowledges that Iowa’s tax system does far less than the federal to acknowledge the cost of raising a family. But nothing is proposed to remedy that problem beyond eliminating federal deductibility; the meager $40 per child “exemption credit” remains.

In addition, the proposal opens a potentially costly — the numbers were not provided — back door to the controversial issue of taxpayer subsidies of private schools, offering a deduction for private K-12 tuition through the 529 plan. Families who already can afford to send their children to a private school would receive a benefit they do not need, at a time public schools are being held back.

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Putting the U.S. Constitution up for grabs

Posted January 30th, 2018 to Blog




In a republic we have rules — laws — framed by a Constitution that sets limits on how far they go, and on who can exercise them, while assuring that we can change them as needed, in an orderly process that protects the rights of all.

Imagine these rules were gone, that they all changed, that a minority could routinely stop the majority from moving forward, that individual liberties could vanish.

Imagine the squabbling members of Congress you see every night on television setting themselves up as modern-day George Washingtons, James Madisons and Ben Franklins, and flipping everything on its head. A bill calling for a U.S. Constitutional Convention — approved last year by the Iowa Senate State Government Committee and moving again this year — could do just that.

The bill, Senate Joint Resolution 8, or SJR8, would put the State of Iowa on record calling for a constitutional convention, which could easily become a free-wheeling assault on our constitution, following whatever process it chooses, with no review by any existing court or legislative body.

While the resolution asserts that such a convention would be limited, the scope of issues is so broad as to effectively erase limitations: “to impose fiscal restraints, and limit the power and jurisdiction of the federal government.” Even then, it is not clear that states have the authority to limit the scope of a convention at all. According to constitutional scholars, the delegates would likely be free to define any limits as broadly as they wish, or to ignore them.

Why now? In some states, such as Iowa, far-right organizations including the Convention of States project and the American Legislative Exchange Council (ALEC) now have enough supporters in key positions to push for such changes even though none of this has been the focus — perhaps not raised at all — in Iowa election campaigns.

Supreme Court Justices ranging from the liberal Earl Warren to the conservative Antonin Scalia have warned against the dangers of opening up the constitution to radical change. If 34 states pass such a resolution, Congress will call a constitutional convention. One group counts 28 states that have already signed on.[1] It is conceivable that the threshold could be reached.

The Constitution contains very little guidance on the procedures for, or scope of, such a convention. The only precedent we have to go on is the constitutional convention of 1787, at which the existing document, the Articles of Confederation, was scrapped and an entirely new constitution, our present one, was created. That convention even changed the rules for ratification.

The delegates to a constitutional convention could set a rule that all decisions would require approval only by a simple majority of the states, with each state given one vote. That would allow the 26 least populous states, which contain less than 18 percent of the U.S. population, to rewrite the constitution.

The Constitution provides no guidance as to whether such a procedure is permissible. And even if Congress were to establish rules for the convention, there is no mechanism to force the convention to follow those rules.

Constitutional scholars say that under a convention now, the entire U.S. Constitution is up for grabs. It could quickly become a contentious and chaotic free-for-all, with moneyed interests free to lobby and purchase support however they chose.

[1] Iowa is shown as already on the approval list because of a resolution passed in 1979, but groups are pushing for a new one for fear that the age of that resolution will disqualify it, and because the wording of the 1979 version is different from the current one.


Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City.


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

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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, 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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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

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

Focus on fixing insurance exchange

It’s time for Iowa’s congressmen and senators to start working on immediate measures to strengthen the health care system, and specifically the health insurance exchange, or marketplace. The obsession of some with bills to repeal and replace Obamacare has been a distraction from that task.

In recent days, bipartisan groups have sprung up in both the House and the Senate to begin developing legislation to stabilize the insurance market. These groups recognize the immediate need for measures to ensure that federal payments continue for cost-sharing reductions (CSRs) that help low-income people afford their copays and deductibles. Without the assurance that these payments will continue, premiums will rise sharply.

The president has threatened to continue his efforts to sabotage the Affordable Care Act (ACA) by ordering an end to CSRs. This threat has already prompted Medica, the only Iowa health insurance company still offering plans on the exchange, to plan for another premium increase.

The bipartisan efforts to shore up the insurance exchanges could include another important measure: a reinsurance program that would reduce the risk that a small number of high-cost customers will cause insurance company losses. The “million-dollar customer” has been cited as a factor contributing to the decisions of Wellmark and Aetna to exit the Iowa exchange. Reinsurance would establish a national pool to cover high-risk cases; this would allow companies to remain in the exchanges without drastic premium increases on everyone to pay for those few cases.

The Senate’s attempts to repeal and replace failed because they were wildly unpopular. These measures would have resulted in over 200,000 Iowans losing health insurance; would have effectively ended the expansion of Medicaid that covers thousands of low-wage workers; would have reduced Medicaid benefits for thousands of seniors, children, and people with disabilities; would have raised premiums and deductibles; would have gutted protections for persons with pre-existing conditions; and would have provided billions in tax cuts to wealthy individuals and corporations.

Another attack on coverage: Graham-Cassidy

Pragmatic efforts to stabilize the health insurance market stand in stark contrast to a last-ditch attempt to repeal and replace Obamacare that surfaced this week: the Graham-Cassidy plan. Like the previous failed bills, this plan would end the Medicaid expansion that now covers 150,000 Iowans.

Unlike previous repeal and replace bills, the Graham-Cassidy plan would also end the premium assistance that makes health insurance affordable to tens of thousands of low and moderate income Iowa families. While it replaces ACA funding of premium assistance and Medicaid expansion with a block grant, it provides no guarantee that the states will use that block grant to make health insurance affordable to those who need help the most. And the bill would further destabilize the insurance market by ending the mandate to purchase insurance, while making it more expensive, leaving insurance companies with the sickest and costliest customers.

The problems with the insurance exchange in Iowa are fixable. Let’s see if our Senators and Representatives actually try to fix those problems instead of using them as an excuse to fund tax cuts to the wealthy by forcing tens of thousands of Iowans off their health insurance.

Peter Fisher is research director of the Iowa Policy Project.