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How delaying property tax enforcement affects Iowa taxpayers, local government

Jon Muller is a semi-retired public policy analyst and sporadic blogger at by Laura Belin

Governor Kim Reynolds’ March 20 proclamation related to the COVID-19 pandemic suspended provisions of Iowa law imposing penalties and interest on late property tax payments.

Iowa’s 99 county governments collect property taxes and distribute the funds to themselves and other taxing authorities, such as school districts, cities, community colleges, or townships. The taxes paid by property owners are technically due on March 1 and September 1 of each year. Normally, penalties and interest begin to accrue on April 1 and October 1, respectively.

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Trump's trade war: Be careful what you wish for

Jon Muller: The Trump administration’s two stated goals “are incompatible to the point of being mutually exclusive in a peaceful world.” -promoted by Laura Belin

There is a consensus in the U.S. that China is a bad actor. It is not so much my goal to destroy that consensus, though most of its underpinnings are based in fantasy, nationalism, and the convenient politics of fear.

Rather, this essay is a critique of current U.S. policy, and the absurdity of the disconnect between what we say we want versus what we’re asking for.

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A case for Andrew Yang and his Freedom Dividend

Des Moines resident Jon Muller has worked in public policy analysis for 27 years. -promoted by Laura Belin

While I will be voting for whoever wins the Democratic nomination for president, Andrew Yang stands out among the nearly two dozen candidates.

There are two fundamental questions most Democrats are considering, broadly, and I’m not much different.

1. Which candidate has the best chance of winning in 2020?
2. Which candidate best conforms to my sense of the best direction for this nation?

In my view, Andrew Yang is the answer to both of those questions. Let’s take the second question first.

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Voters vexed by stagnation myth

Jon Muller challenges a “Big Myth” about the economy, which drives some voters toward leftist candidates rather than more viable centrist Democrats. -promoted by desmoinesdem

I got wrapped up in a couple of heated arguments after this week’s special election in Ohio’s twelfth Congressional district. According to those sympathetic to the Green voters, the problem was a choice of two Republicans. This was a rehash of frustration surrounding Green Party voting in the 2016 general election in the Great Lakes states.

Whether that voting, either in 2016 or in OH-12, tipped the election is not pertinent. Rather, this is an exploration of their position and the underlying grievance. The rejection of a centrist Democrat dismisses two central realities:

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A spiritual case for a woman's right to have an abortion

A personal reflection by Jon Muller. -promoted by desmoinesdem

Those who read my posts have come to expect conclusions based on data, some level of quantification of a process, phenomenon, or proposal. There are plenty of data with respect to abortion that might inform our views, but this is simply my spiritual and moral view with respect to two claims.

1) Choosing to terminate a pregnancy is not a moral question.

2) The right of a woman to have an abortion should not be infringed.

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Governor Reynolds, please veto Farm Bureau/Wellmark monopoly bill

Jon Muller canceled his insurance policy after more than 20 years as a Farm Bureau member because of legislation that could leave thousands of Iowans like his sister uninsurable. -promoted by desmoinesdem

Last night, I sent the following letter to Governor Kim Reynolds urging her veto of Senate File 2349, a bill that in effect grants a monopoly to a partnership between the Iowa Farm Bureau Federation and Wellmark Blue Cross/Blue Shield. This letter does not get into all the negative implications of the bill, but it’s a start.

I’m no expert on whether vetoing this bill is politically expedient or not. But I am fairly certain the damage will be vast, and far beyond what anyone supporting this bill ever contemplated.

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The story has changed, but not the economy

Jon Muller fact-checks some assertions from the State of the Union. -promoted by desmoinesdem

The president bragged about the economy last night, suggesting the dawn of a new era of growth after decades of stagnation. It isn’t true. Well, it’s partly true. The economy is doing fairly well by most measures. But have we seen any appreciable change in trend?

This post will address four claims made by the president, related to manufacturing, wage growth, black unemployment, and coal production.

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Booze, women, and movies!

How large an estate could a working person build by investing rather than spending “every darn penny they have” on “booze or women or movies”? Jon Muller ran some numbers. -promoted by desmoinesdem

Senator Chuck Grassley commented on what he sees as the motivation behind opposition to eliminating the estate tax, as reported by the Des Moines Register.

“I think not having the estate tax recognizes the 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…”

As someone who resembles his remarks, I decided to run some numbers. Consider the following assumptions:

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Go green for less green: A guide to consumer renewable energy credits

Jon Muller crunched the numbers on a way for homeowners to claim they are using renewable energy without installing wind turbines or solar panels. -promoted by desmoinesdem

This post is for those who want to encourage renewable energy, and are willing to put their money where their mouth is. This isn’t for people who are merely willing to reduce consumption, which has the side benefit of actually saving money. We’re talking about people willing to pay more for their electricity if they think it’s renewable.

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We can fix the Affordable Care Act for $30 each

Jon Muller offers a short-term solution for a problem facing tens of thousands of Iowans. -promoted by desmoinesdem

I just read that Blue Cross and Blue Shield of Kansas City is pulling out of the Affordable Care Act Exchange Market. This is on the heels of an earlier announcement by Wellmark Blue Cross and Blue Shield in Iowa, which last month announced it too was retreating from the individual insurance market. Aetna and Medica have also said they will not sell individual policies to Iowans in 2018.

Keep in mind, these developments come at a time when enrollments started to fall after the Trump administration announced it would not enforce the penalties put in place by the last administration for the current year, penalties that were just beginning to get to the point of altering behavior. Indeed, Wellmark BCBS of Iowa stated that as one of the reasons for its departure from the market. The insurance companies were also afraid (with good reason) that their loss subsidies would not be extended into 2018. Neither Congress nor the President would offer up any such assurance.

It’s important first to understand what this means.

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Expect more downward revisions in Iowa revenue estimates

Jon Muller examines factors contributing to Iowa’s budget crunch. What do you want first: the bad news or the “quite disturbing” news? -promoted by desmoinesdem

The Iowa Revenue Estimating Conference (REC) reduced its FY 2017 estimate for General Fund Revenues by $106 million. That’s on top of the $96 million downward revision in December 2016. Since the original estimate used for FY 2017 appropriations (December 2015), cumulative downward revisions total $243 million on a $7.3 billion budget.

This has led to all the gnashing of teeth that comes every time revenues begin to slow. The REC has never been particularly prescient when it comes to predicting the turn in receipts, either on the way down or the way up. I have some insight into this phenomenon because I used to be a revenue estimator for the Iowa General Assembly, and wasn’t any better than they are now. Indeed, economic models in general are not very good at predicting turns in the business cycle until after they happen. They are very good at generating consensus forecasts that tend to magically predict the next year will look a lot like the current year, at least during stable periods.

What’s new this time around is, according to policy makers expressing concern about the downgrade, is the reduction in revenues during what is considered a reasonably healthy economy. In my view, the stress on the General Fund is actually due to two primary factors. The economy is perhaps not quite as robust as consensus opinion suggests. Secondly, it appears the cost of House File 2433 passed during the 2016 legislative session, a bill providing a sales tax exemption for items consumed in manufacturing processes, was dramatically understated.

I suspect those looking to blame the sluggishness on a downturn in the farm sector will be disappointed as farm income growth begins to turn positive. Those who believed hundreds of millions of dollars of tax cuts and credits would spur state revenue growth should be equally disappointed. It’s just not happening.

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The Jury Is In: Impact of Iowa Business Property Tax Cuts

Thanks to Jon Muller for a close look at the effects of a law that is a major reason Iowa lacked the revenue to fund K-12 schools and higher education adequately this year. -promoted by desmoinesdem

Senate File 295, the keystone tax bill passed into Iowa law in 2013, is now in full swing. It left a big hole in the State’s General Fund. It delivered handsomely on its promise to cut taxes for commercial property owners, at least in the short run. It provided modest help to the working poor. For its $500 million (plus) price tag, it has accomplished little else.

One positive aspect from the bill, at least from the perspective of most readers on this blog, was an increase in the Earned Income Tax Credit, which returns approximately $30 million to low-income working Iowans. Whether that benefit was worth the hundreds of millions given away to Iowa commercial property owners is a question left to the political analysts.

The remainder of this piece will focus on the property tax components of the bill. For reasons economic, these provisions are not likely to fulfill their stated purpose of spurring development or reducing rents for small businesses and renters. Those issues will be the subject of a different blog post. This post addresses a variety of tax burden shifts, some intended, some not. Virtually all of the benefit has gone directly to improve the wealth of commercial property owners, and shifted the property tax burden to homeowners in the short-medium run. In a strange twist, for those who desired that impact, even that may possibly fail the test of time.

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Clinton Might Be a Better Bet than Sanders

Fascinating look at how investors view the electability question. One 2003 study found that the Iowa Electronic Markets were “both closer to eventual election outcomes and more stable than polls over the course of election campaigns.” According to Muller, last night’s primary results dropped Clinton slightly to 87.1 cents, while Sanders rose to 12 cents. -promoted by desmoinesdem

Supporters of both Senator Bernie Sanders and Secretary Hillary Clinton are busy on social media making their respective cases for why one or the other has a better chance of beating Donald Trump in the General Election. Insofar as you’re reading this, you have no doubt heard the arguments on both sides. Sanders is a socialist, and more than half of the American electorate will never vote for a socialist. Clinton has too much baggage, and is owned by Wall Street. On the one hand, there are national polls showing Sanders may have the edge over Trump, relative to Clinton. On the other hand, all of Clinton’s baggage is already common knowledge (real or imagined), and no one has really started attacking Sanders yet.

This is all an exercise in conjecture. Even sophistry. While I generally come down on the Clinton side of this debate, it’s been little more than a general feeling. Perhaps there are actual data that might give us a reason to prefer one candidate over another, provided “Democrat Winning the White House” is an important issue for a voter. The Iowa Electronic Markets (IEM) provide the data required to address the issue with a little more statistical rigor.

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Governor Cuts Taxes Without Legislative Approval After Vetoing Iowa School Funds

(Many thanks for this analysis of the latest abuse of executive power by the Branstad administration. The author is a partner at Iowa School Finance Information Services and a former staffer for the non-partisan Legislative Services Agency. - promoted by desmoinesdem)

The Iowa Department of Revenue and Finance (IDORF) has proposed new administrative rules, effectively providing a tax cut worth tens of millions of dollars for Iowa manufacturers.  Absent a legislative response, the rule goes into effect January 1, 2016.…

This is a serious overreach of executive power. The complexity of the issue, coupled with the unquenchable desire by the party in power to reduce taxes on business, provide the perfect climate to give a tax cut to manufacturers of some amount between $35 million to $80 million, perhaps more. This is an ongoing tax cut of increasing value. This action should be weighed against the Governor’s veto of $55.6 million of education funding….one-time education funding….because the State of Iowa ostensibly could not afford it.

And what is the stated purpose of this rule change? According to the notice, the rules are the “subject of a substantial confusion and controversy.” Furthermore, the change will eliminate “administratively burdensome distinctions…”

Periodically, a taxpayer will contest a ruling and win in court. When that happens, the Department provides a rule change that brings its practices in harmony with current law. That is not what is happening here. The Department is not losing cases in defense of the law. It simply finds the effort administratively burdensome.

How burdensome? The Department has identified 1,500 hours costing $85,000 that is required to enforce the Code of Iowa. That represents 0.24% of the revenue the Department claims to collect from this tax, and probably a lower percentage than that, for reasons discussed below. Interestingly, the Department’s budget is $17.8 million. They collect $8.4 billion in taxes. Their entire budget is 0.21% of each dollar collected. The Department should be commended for the efficiency with which it collects these complicated sales taxes owed by businesses to the State of Iowa.

A little historical context is in order. Generally speaking, manufacturers do not pay sales tax on machinery and equipment, supplies, and replacement parts that are part of the “value-added” process. Machinery and equipment was removed from the property tax roles in the late 1990s, a tax benefit of over $200 million, primarily to manufacturers. Most of this equipment is already exempt from sales tax. This latest administrative action continues the drip drip drip of the erosion of the tax base.

Normally, when the Governor wants to provide a tax cut to businesses or individuals, he makes a recommendation to the Legislature. The Senate and the House work out the details, and send a bill to the Governor to sign. That’s how it worked when they cut property taxes for commercial property owners by $200 million two years ago. That’s how it worked when they cut $200 million in property taxes for business in the late 1990s. That’s how it worked when they cut the sales tax on bailing twine, computers purchased by insurance companies with more than 50 employees, supplies purchased by greenhouses, or my personal favorite, the tax on sales of “tangible personal property sold to a nonprofit organization which was organized for the purpose of lending the tangible personal property to the general public for use by them for nonprofit purpose.”

The issues related to the tax itself are complicated. And the roles of the three branches of government in the execution of the sales tax are complicated as well. This combination makes it difficult to engage in a widespread public policy debate with anything beyond the soundbites. Soundbites, which in this case, are true. Namely, the Governor’s actions demonstrate that the State has enough money to give business a $365 million tax cut over the next ten years, but doesn’t have $55.6 million for schools, one time.

For those requiring a little more Inside Baseball, three factors need to be explored. First, do we really know how much this exemption will cost? Second, an explanation of why this rule is beyond the scope of the Department’s administrative authority. Third, a discussion of the process by which this rule will be implemented or overturned.

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The Iowa Corporate Income Tax and Economic Development

(Excellent analysis of an issue that some Iowa politicians either don't understand or deliberately misrepresent. - promoted by desmoinesdem)

On my drive to work this morning, I tuned into Jan Mickelson's interview with Iowa Senator Randy Feenstra (R) from Hull.  The Senator made the point repeatedly that Iowa's high corporate income tax rate is an impediment to economic development.

This myth pops up every once in a while, and it's a hard one to kill. I attempted to explain by calling in, but there was very little time left.

Iowa's corporate income tax statutory rate of 12% is indeed high. Iowa corporate income tax paid by corporations (Iowa and non-Iowa) is not high. But that is not the point of this discussion. There are two much more quantifiable facts every lawmaker should understand:

1) Companies that choose to locate or domicile in Iowa will not be greeted with an increase in corporate income tax liability. For companies doing business within Iowa and without, there is zero income tax cost to setting up shop in Iowa.

2) Companies choosing to leave the State of Iowa will not save a nickel in Iowa corporate income tax. If the company sells its goods and services in Iowa, the company will not save Iowa corporate income tax by relocating to another state.

These statements are true because of the process the State of Iowa uses to determine the amount of profit on which the company is required to pay tax. States with corporate income taxes generally use one of two approaches. Most states use a “Three Factor Formula.”  Iowa uses a “Single Factor Formula.” It's not that complicated once you get your arms around it.

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Dynamic Scoring Ends 40 Years of CBO Independence

(Thanks for this diary on an important issue that stays mostly below the radar. This resolution passed on Tuesday on a mostly party-line vote. Iowa Republicans Rod Blum, David Young, and Steve King all voted for it; Democrat Dave Loebsack voted against it. - promoted by desmoinesdem)

The House of Representatives approved a resolution changing the House Rules to require dynamic scoring for large tax and spending bills.  The resolution contains a disturbing provision that may well transform the Congressional Budget Office (CBO), long the last bastion of independent public policy analysis for the federal government, into a hapless tool of the House Leadership and a few committee chairpersons.

The resolution requires dynamic scoring for all tax and spending bills greater than 0.25% of US GDP.  US GDP stands just south of $17 trillion.  Thus, the CBO will be required to estimate the economic feedbacks for all bills with a direct impact greater than $42.5 billion.  While I remain unconvinced this is the proper way to analyze the fiscal impact of federal legislation, this provision alone would not be that onerous.  In fact, the principal advocates of dynamic scoring should be careful what they wish for.

Problems will arise due to a provision in the resolution that will inherently yield fraudulent scoring in the aggregate.  The provision requires dynamic scoring on smaller bills with fiscal impact if they are deemed important by the Chairmen of the Joint Committee on Taxation (JCT) and the House Budget Committee, both of which are now controlled by a single party.

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A Plea to Liberals to Reconsider Position on Minimum Wage

(Bleeding Heartland welcomes guest diaries on policy or politics.   - promoted by desmoinesdem)

We liberals have been fighting the wrong battle with the Minimum Wage.  I am not sure whether liberals understand the economics of the minimum wage and choose to ignore them, or whether we just don’t understand basic principles of economics.  I can’t do much about the former, but I can at least shed some light on what actually happens when we raise the minimum wage.

We liberals all share a fundamental belief that government has the power and the resources to improve the standard of living of the poor and the middle class in this country.  Because we have the power and the resources, we have an obligation to take action to do so.  But we should also do no harm in the process, especially to those whose lives we are trying to improve.  The Earned Income Tax Credit is a more efficient way to accomplish our objectives, at a lower cost to society as a whole, with fewer unintended consequences that end up hurting poor people.

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Medical Device Manufacturers About to Get a Sweet Deal

(Thanks to JonMuller for an illuminating look at the medical device excise tax, which Congressional Republicans have been trying to repeal. Iowa's representatives have split along party lines over eliminating this tax.   - promoted by desmoinesdem)

Imagine you own a business.  There’s a knock on the door.  It’s the government, and they’re here to help.  “We’re going to give everyone enough money to buy your product.  We’re not going to make anyone buy it, but it won’t cost them anything if they do.  Your profit is going grow 20%, but we’re going to take half of the new profit so we can afford to pay people to buy it.  But you get to keep the rest.

That’s essentially what happened with the Affordable Care Act (ACA) with respect to Medical Device Manufacturers (MDM).  MDM’s started paying a 2.3% excise tax on the sale of their wares in January 2013.  The logic behind the compromise was as simple as the opening scenario.  Prior to ACA, 30 million to 50 million people were either uninsured or uninsurable.  As a practical matter, people without insurance go without hip and knee replacements and similar procedures.  They just limp.

While there may well be more knee replacements, there will be many more people with insurance, and virtually everyone will have access to insurance if they need it.

Now the winds are shifting.  Tea Party Republicans, ostensibly opposed to deficit spending, have shut down the government and are threatening to cause the first credit default in US history.  In a particularly ironic twist, a compromise is emerging, most recently championed by Sen. Susan Collins, a Republican from Maine, to repeal the tax on MDMs.

In other words, the government will be greatly expanding the market and increasing the profits of MDMs, but will not ask for anything in return for that expanded market.  The result will be an increase in the deficit of $30 billion over the next 10 years.

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