FACTS & ALTERNATIVES - PowerPoint Presentation

Slide1

FACTS & ALTERNATIVES

… but no ‘alternative facts’

Iowa Federation of Labor, AFL-CIOLegislative Conference • Altoona • March 21, 2018

Peter Fisher • Mike OwenIowa Policy Project

Iowa Policy Project

Iowa Fiscal PartnershipSlide2

The Iowa Policy Project

www.iowapolicyproject.org

Iowa Fiscal Partnership •

iowafiscal.org

We help Iowans

sort fact from spin so they can talk to legislators and their neighbors about the issues that affect them.That starts with the facts. Slide3

Or, it

should

start with the facts …Slide4

Through

public services and public works, we the people, acting through our government, protect and strengthen natural resources

, human and material; lift up the standards of health, education, and welfare for ourselves and our children at all levels of individual income; mitigate individual misfortune; and execute projects not appropriate to private action.’ — Paul Hoffman, CEO of Studebaker,

testifying to the US Senate, 1945

‘

… and maybe the ‘common good’Slide5

TAX POLICY

REVENUE

PRIORITIES

If your focus is here …

… you need to look here

… and hereSlide6

The State of

State and Local Taxes

in Iowa

IowaFiscal.orgSlide7

Competitiveness

Stability

Simplicity

Transparency / Accountability

Fairness Public Benefit

Revenue AdequacyTax Principles

IowaFiscal.orgSlide8

Principle: Fairness

Taxes should be based on ability to pay — similar ability to pay, similar tax responsibilities

Progressive vs. Regressive

vs. ProportionalLow Income High Income

Tax as Share of IncomeSlide9

Principle: Fairness

Taxes should be based on ability to pay — similar ability to pay, similar tax responsibilities

Progressive vs. Regressive

vs. ProportionalLow Income High Income

Tax as Share of IncomeSlide10

Principle: Fairness

Taxes should be based on ability to pay — similar ability to pay, similar tax responsibilities

Progressive vs. Regressivevs. Proportional

Low Income High Income

Tax as Share of IncomeSlide11

WHO PAYS

State and Local Taxes

in Iowa

IowaFiscal.orgSlide12

In Iowa,

personal income tax and sales tax are largest shares of the General FundSlide13

WHO PAYS?

In Iowa,

lowest 80% pay 10%

while top 1% pay 6%

avg

$11.6K avg$50.5K avg$956K

INSTITUTE ON TAXATION AND ECONOMIC POLICY — ITEP.ORGSlide14

WHY? TAX MIX FAVORS WEALTHY

In Iowa,

income tax

is not sharply

progressive

Source: ITEP.orgSlide15

Iowa’s long-term shift to sales tax

hits low-income families hardest

In Iowa,

sales tax is sharply regressive

Source: Institute on Taxation and Economic Policy —

ITEP.orgSlide16

Iowa’s property taxes also affect low-income families more

Source: Institute on Taxation and Economic Policy —

ITEP.org

In Iowa,

property tax is mainly regressiveSlide17

Principle: Competitiveness

Very simply:

Are Iowa taxes ‘out of line’?Slide18

IOWA’S LOW BUSINESS TAXES

State and local business taxes as a share

of total General State Product, FY2016

Source: Ernst & Young, Total state and local business taxes, August 2017

Iowa Fiscal Partnership

Really, Iowa in middle of big pack Iowa: 29thIowaFiscal.orgSlide19

AND, BY ANOTHER MEASURE …

State and local business taxes as a percent

of pre-tax operating surplus, FY2015

Iowa Fiscal Partnership

Still, Iowa in middle of big pack

Source: Anderson Economic Group, April 2017 Iowa: 28thIowaFiscal.orgSlide20

National business analysts rank Iowa in the middle both regionally

and nationally.

Source: Ernst & Young, August 2017IowaFiscal.org

Source: Anderson Economic Group, April 2017 Slide21

Our leaders are in a state of denial that

IOWA TAXES ALREADY ARE ‘COMPETITIVE’

Source: Ernst & Young, August 2017

IowaFiscal.orgSlide22

IowaFiscal.org

Census data

show the same thing.Slide23

CURRENT PROPOSALS:

State and Local Taxes

in Iowa

IowaFiscal.orgSlide24

What sensible ‘reform’ might include

In Iowa, a key is

‘federal deductibility’

But … as always,

devil is in the detailsSlide25

Governor Kim Reynolds

on federal deductibility

“Because of an outdated provision in Iowa’s tax code, Iowans will see a tax increase if we don’t pass tax reform at the state level.“Iowa is one of only three states

that allow taxpayers to deduct their federal taxes. While that might sound like a good thing, right now it’s not. ..Slide26

Federal tax bill impacts — Iowa

Combined effect: Wealthiest do best… and an increased state tax barely makes a dentSlide27

What sensible ‘reform’

might include:

Eliminating federal deductibility and

adjusting ratesModernizing sales tax

for 21st

century to reflect new services, e-commerce and remote salesClosing tax loopholes in corporate and individual income taxExpanding deductions and credits on individual income tax especially for working families with kids, recognize core costs that shouldn’t be subject to tax Slide28

But sensible ‘reform’ would not include:

Less Revenue

at a time we are making cuts and underfunding services.A system less fair than the unfair system we have now.

Both the Governor’s and Senate plans lose revenue, and ‘backload’ the losses, phasing them in.Slide29

Sensible reform would

not significantly change tax on retirement income — it’s already shieldedSlide30

FY19

FY23Slide31

Main points of Governor’s plan:

Revenue losses, growing to about

$300 M in FY2023Sales tax increase (expanded to online sales)Income tax rate cuts AND elimination of federal deductibility — could be more progressive

Special benefit to filers with business income

“Triggers” would ratchet down revenue

for critical public needs such as education, human services and clean water protection. They’re sold differently.Slide32

Taxes must be capable of producing sufficient revenue to finance essential state and local public services.

Principle:

Revenue Adequacy

How are we doing?

We’re cutting at midyear. Slide33

Iowa Revenue Situation: FY2018

FY18 — Revenue Estimating Conf. now projects:

$7.271 Billion revenue (previous: $7.238 Billion) Despite a better forecast, still a shortfall: $3.6 million — but they’re cutting more. House voted yesterday.Slide34

Iowa Revenue Situation: FY2019

For FY19, Revenue Estimating Conf. projects:

$7.734 Billion revenue, up from $7.238 Billion 6.4 percent increase (Don’t count on it.)Highly unlikely that this kind of growth will be permitted by Legislature or Governor.

They want to cut taxes; question: How much?Slide35

Giving Away Revenues:

Already a problem, without new cuts

Self-imposed revenue challenges take different forms:

• Tax cuts

(more are coming)

• Tax credits (fastest-growing spending)• Tax loopholes (never addressed)Slide36

Iowa’s high cost

of prop. tax cuts

$3.13 Billion over 10 Years

Pricetag

:Slide37

So, what, really are our priorities?

Business tax credits — fast growth.

SSA (school aid) has risen less than 2 percent a year on average for the last eight years.These issues are connected …

They are all about spending choices.Slide38

Business credits:

Fast growth outpaces rest of the state budgetSlide39

Business credits:

Adding property tax breaks means biz credits doubled in 5 yearsSlide40

Research Activities Credit: No taxes, big checks

When companies have more tax credits than they can use

Source: Iowa Department of Revenue, Research Activities Credit Annual Reports, 2010-2017Slide41

Source: Iowa Policy Project analysis of Iowa Department of Revenue Data

RAC Claims

3 companies at $5 million-plus in 2017 claims;

 12 companies over $1 million

Big companies are the biggest gainers from Iowa’s biggest tax credit program.Slide42

Budget choices we could have

Revenues

Spending

$40 Million

YOUR PRIORITY HERE

vs.RAC Checks to companies that pay no income taxSlide43

Subsidies vs. services

And it’s not just K-12

Could be Child Care

Could be Medicaid

Could be EITC

Could be Higher EdCould be clean waterSlide44

Iowa headlines these daysSlide45

Higher Education: Lip Service

WHO PAYS? WHERE ARE OUR PRIORITIES?

TUITION VS. STATE APPROPRIATIONS FOR PUBLIC HIGHER EDUCATIONSlide46

Higher Education: Lip ServiceSlide47

Higher Education: Lip ServiceSlide48

Talk is cheap. Education is not.

“

We are investing in education; don’t let them tell you any different,” Reynolds said. “We want to make sure our young kids are prepared to be competitive in a knowledge and global economy. ... We have to be careful that we’re not measuring quality of education by the money that we’re putting into it.”

CR Gazette story March 8, 2018Slide49

Governor’s claim is simply not true — she is choosing data out of context, but convenient.

This graphic came from Governor Reynolds:

We’re telling you differently.

The Governor won’t.Slide50

Better: Care with research data

Actually, the study ranks Iowa 13

th, not 4th — and school funding growth at 4.9%, not 20.6% over 7 years.

4.9%Slide51

Better: Care with research data

“You could look it up.”

4.9%Slide52

OR, HELP US TO KEEP DOING IT!

www.iowapolicy

project

.org

www.iowapolicy

points.orgwww.iowafiscal.orgwww.cfpciowa.orgSlide53

SO YOU CAN USE IT!

Remember:

No new tax cuts to business are needed

— we are

already

competitiveWe cannot afford tax cuts that mean service cutsWhy increase an imbalance between working and retired Iowans on what they pay in taxes?Tax cuts = revenue cuts = higher tuition so I can’t afford to send my kids to the community college or to the universityWhen you are cutting everything else, why do business tax credits just keep growing? Doubling in five years!Slide54
Slide55

General comparison of the two plans:

FY2023 IMPACT MILLIONS $

Specific features Governor SF2383————————————————————————————————————Std deductions, fed. deductibility, and tax rates most most

Sales tax on e-commerce and remote sales + 114.9

+ 21.7Corporate income taxes --

- 267.4Tax expenditure reforms -- + 20.3New tax preference expenditure (QBID) - 29.5 - 118.0 Additional preferences for senior pensions -- - 16.3Expanding 529 plans to K-12 education - 5.4 - 5.4————————————————————————————————————Overall impact - 299.4 - 1,235.1Slide56

Beware

talk of a ‘flat tax’

The effect might not be ‘flat’ Slide57

TAX EQUITY — Look at full picture

REMEMBER the ‘WHO PAYS?’ ANALYSIS

• D.C. & MN close to flat overall — generous refundable EITC, high top rates, limit high-inc. breaks

• CA — heavy reliance on very progressive income tax