Thoughts From Sen. Joe Bolkcom

The following is from Senator Joe Bolkcom from his weekly Networker:

Angry Tea Party – What’s in that Tea?

Who isn’t mad as hell about how things are going in the America? We are in a deepening recession that has been caused by the irresponsible, greedy behavior of Wall Street and those in the so-called financial services industry that counted their paper profits as they turned their back on the ticking time bomb of the sub-prime housing market meltdown and years of a Republican philosophy of lassie fare capitalism that has allowed a no holds barred approach to executive compensation, unregulated lending schemes and virtual criminal activity in the management of our financial system.

Capitalism Gone Wild! Where were all the adults?

The house of cards has collapsed. And now all of us are being asked to pay; to bailout, to not allow the too big to fail. I never dreamed that I would be the part owner of the largest insurance company in the world! Mad? Count me in!

And all of this as the standard of living (income growth) for many Americans is slipping away as they work harder and harder to make ends meet. Trillions of dollars robbed out of our retirement accounts and home values. When is someone going to prison?

This frustration has welled up in anti-government Tea Party activism across the country. This week, three thousand people at the State Capitol, hundreds in Iowa City all mad at government and government spending. While I completely get the frustration and anger, I’m confused about the focus.

Cutting funding for our local schools, community colleges and public universities won’t do much to return value to the stock market or help our kids adjust to a changing world and economy. Laying off teachers actually will worsen the problem. Cutting health care spending will do the same. This is also the case for spending on public safety, prisons, courts, environmental programs and flood recovery efforts.

We actually need more, not less governmental regulation and oversight over the financial services industry.

I’m all for the activism. I just think it needs to consider far more carefully how we got here and recognize that NO ONE is very happy with all the not so optimal choices for driving this wreck out of the ditch. What's your analysis?

I'll get back to you Senator, you ask an important question which requires a thoughtful answer.

The Bane of the Tax Base

Local economies thrive on property and sales tax dollars and economic development is part of the foundation for both. In Iowa City, economic development involves a love/hate relationship between the University of Iowa which takes property off the the tax rolls while bringing in sales tax and property tax dollars by the bucket full by virtue of the tens of thousands of students, parents, and visitors that the keepers of the Golden Dome bring and the contractual arrangements that the city and U of I enter into for services.

In a real sense you'd think that would be enough to to fund services for the rest of us. But, of course, you'd be wrong. The other side of a college town is the demands that are placed on its resources to serve the types of people who are needed to keep the pump primed, your medical school doctors, your business faculty, your law school faculty--and I suppose your Liberal Arts and Science profs, but its only because of the number of students that are in that college. Then there are your students from the western suburbs of Chicago, Des Moines, Davenport--really the west side of any thriving burgh. These are tough customers. They want stuff, they ask for stuff, and they get stuff: parking ramps, policing of downtown, and historic preservation (as long as it doesn't impact UIHC hospital), as well as a gagillion bars and apartments, and a smattering of restaurants, stores, and other needed things.

Then there are the rest of us who have kids in excellent local schools, parks for us and our dogs, and historic preservation (as long as it doesn't impact Mercy Hospital). We also demand curbside recycling and policing for the dangerous neighborhoods (not the ones frequented by students, the other ones).

Of course all of us want fire stations within three minutes of our homes and businesses (although the occasional "unknown cause" fire can be good for business too). We all want the arts (loosely defined from public art displays to ceramics classes at the Center [aka the Senior Center]).

Then there are those services that tend to be used by those in need and we don't like our money being wasted, but for God's sake, someones got to do something to help those people. Of course, if they would just grow a pair of bootstraps and pull themselves up, well that would be fine too.

Certainly we all believe the city government wastes our money or if not the city, certainly the county does; and if not the county, well, you know the state does or at the very least the federal government. It's this way, we like the stuff that taxes does that benefits us, but not the stuff that benefits other people.

Every so often those that govern (and the Chamber of Commerce) bring in consultants to educate the public about how we need to get behind the economic mower and help it cut a wider swath. This month's contestant: we need to make our community vibrant for the cool, trendy people who wear the rectangular glasses and favor pomegranate-flavored beverages who will flock to the frigid weather of Iowa to be with other cool, trendy people who presumably like their pomegranate stirred not shaken.

It is how we grow the tax base. But did anyone actually stop to think, how can we sustain the community we have with the resources we've got? Could we actually do more with plans that people are excited to be a partner in? Could we actually be happy with things the way they are, but with a sharper focus?

This is the bane of our tax base, the need for it to grow so that we don't really have to think so much about why we are spending what we spend and/or to what end. It takes money to make money--at the end of the day its our money that is taken to make the city some money.

Plumbing the Depths for Truth About Taxes

If I were to tell you that I had an idea that would help out you and 95% of other people and would only negatively affect 5% of the people who I had helped out for years before that (at the expense to you and the other 95%, I might add), You'd probably be okay with that, wouldn't you? Heck, you might even think it was about time that you caught a break.

Now, what if I were to tell you that same idea would help 98% of people like you and only hurt 2%, how would you feel about that? Oh, and there's money in it for you, if you go along with the idea.

"What's the idea," you ask? The tax plan offered up by Barack Obama. It would help 95% of all Americans pay the same or fewer taxes and the same plan as it applies to 98% of all small business people. But you don't have to take this blogger's word for it, check this out.

Under Obama's plan, Joe the Plumber and Joe Six Pack can sleep tonight knowing that his plan to buy any business that nets under $250,000 a year won't be affected by Obama's tax plan. And do you know how it works? Making folks pay into the system who have been given breaks and have figured out the loopholes to avoid paying their fair share.

Leveling the playing field, what a crazy idea!

Taxing Our Patience

FactCheck demystifies another of John McCain's erroneous campaign ads.

There He Goes Again
September 18, 2008
McCain ad misrepresents Obama's tax plan. Again.
Summary
The McCain-Palin campaign has released a new ad that once again distorts Obama's tax plans.

* The ad claims Obama will raise taxes on electricity. He hasn't proposed any such tax. Obama does support a cap-and-trade policy that would raise the costs of electricity, but so does McCain.

* It falsely claims he would tax home heating oil. Actually, Obama proposed a rebate of up to $1,000 per family to defray increased heating oil costs, funded by what he calls a windfall profits tax on oil companies.

* The ad claims that Obama will tax "life savings." In fact, he would increase capital gains and dividends taxes only for couples earning more than $250,000 per year, or singles making $200,000. For the rest, taxes on investments would remain unchanged.

The McCain campaign argues in its documentation for this ad that, whatever Obama says he would do, he will eventually be forced to break his promise and raise taxes more broadly to pay for his promised spending programs. That's an opinion they are certainly entitled to express, and to argue for. But their ad doesn't do that. Instead, it simply presents the McCain camp's opinion as a fact, and it fails to alert viewers that its claims are based on what the campaign thinks might happen in the future.

More at FactCheck.

Taxes of Evil?

This is the graphic I've been waiting to see, a side-by-side comparison of the income tax plans proposed by camps McCain and Obama (Thanks to Sheila O.K. for sending this my way from the Washington Post). As you can see, the McCain plan provides tax "relief" to all Americans, but the Obama plan provides the most relief to the middle and low income brackets. In essence, the Obama plan creates parity for those who have been shouldering the Bush (and presumably continued by McCain) induced tax-cuts.

Truthout says:

According to the recent Tax Policy Center study, both candidates' plans would increase the national debt. However, Obama wins here on the fiscal conservation front: McCain's proposal would cost the Treasury $3.7 trillion, while Obama's would cash in at $2.7 trillion.

The power of the purse ultimately rests with Congress, and neither candidate would be able to singlehandedly change the course of economic policy upon taking office. Still, when it comes to taxes, Obama and McCain would guide the country in sharply different directions.

Morford: Tax My Rich White Torturer

Mark Morford is columnist in San Francisco and he writes with delicate sensibilities that Iowans are accustomed to...hats off to Larry Baker for passing this mental two-by-four my way.

Just so we have this straight: You are not paying taxes merely to fund torture and bomb-dropping and the killing of countless innocents in Iraq in a futile and lost war that's not really a war and is far more of a massive fiscal, tactical and moral failure which will end up costing the nation an estimated $3 trillion, burn through any remaining sense of national dignity and leave repercussions that will last for generations.

Ha. You should be so lucky. Because your tax money is right now also funding the Fed's unprecedented and rather shocking multibillion-dollar bailout of rich bankers and fund managers who have, through their greed and excess and with the implied blessing of former Chairman Alan Greenspan (whom many consider the architect of the collapse in the first place), helped bring about what is shaping up to be the worst fiscal crisis since World War II.

There now. Don't you feel better? Isn't it a good time to be an American? And is it not, despite the notorious dishonesty of the players involved, still a bit hard to believe?

Keep reading...

Facts on the Tax Cut Fiction

FactCheck has this to say about tax cuts. What it says in a nutshell is that tax cuts don't work, at least not one's that we get...

Q: Have tax cuts always resulted in higher tax revenues and more economic growth as many tax cut proponents claim?

A: No. In fact, economists say tax cuts do not spark enough growth to pay for themselves.

This economic theory is what George H.W. Bush called “voodoo economics.” We called it “supply-side spin” when we wrote about Republican presidential contender John McCain’s claim that President George W. Bush’s tax cuts had increased federal revenues. We found that a slew of administration economists – from the Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation and the White House’s Council of Economic Advisers – all disagreed with that theory, saying that tax cuts may spur economic growth but they lead to revenues that are lower than they would have been if the cuts hadn’t been enacted.

The supply-side theory that tax-cut proponents often espouse was demonstrated by the Laffer curve, named for economist Arthur B. Laffer. The curve suggests that a higher tax rate can generate just as much revenue as a lower rate. But most economists are not Laffer-curve purists. Instead, while they may believe in the power of tax cuts to create an economic boost, they don't say that growth is enough to completely make up for lost revenue. For example, N. Gregory Mankiw, former chair of the current President Bush’s Council of Economic Advisers, calculated that the growth spurred by capital gains tax cuts pays for about half of lost revenue over a number of years and that payroll tax cuts generate enough growth to pay for about 17 percent of what is lost.

Corporate income taxes, however, may be an exception. There is some evidence that cutting the corporate tax rate can produce more revenue than was projected under the higher rate in the special case of multinational corporations, which can move their money and operations around to take advantage of lower taxes in certain countries. Economists with the pro-business American Enterprise Institute came to that conclusion in a study released in July 2007. They found that lower corporate rates attract enough growth in corporate income to produce higher government revenues. However, one of the authors, Kevin A. Hassett, told FactCheck.org that small countries, such as Ireland, had the most success and that "it may or may not be correct" to apply the study's results to the United States.

United States Congressional Budget Office. "The Budget and Economic Outlook: Fiscal years 2008 to 2017" Jan. 2007.

United States Council of Economic Advisers. "Economic Report of the President." U.S. Government Printing Office. Feb. 2003.

United States Joint Committee on Taxation. "Estimated Budget Effects of the Conference Agreement for H.R. 1836" JCX-51-01. 26 May 2001.

United States Joint Committee on Taxation. "Estimated Budget Effects of the Conference Agreement for H.R. 2 The ‘Jobs and Growth Tax Relief Reconciliation Act of 2003.’ " JCX-55-03. 22 May 2003.

United States Department of the Treasury, Office of Tax Analysis. "A Dynamic Analysis of Permanent Extension of the President’s Tax Relief." 25 July 2006.

Mankiw, N. Gregory and Matthew Weinzierl, "Dynamic Scoring: A Back-of-the-Envelope Guide," 12 Dec. 2005.

Brill, Alex and Kevin A. Hassett, "Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries," American Enterprise Institute, AEI Working Paper #137, 31 July 2007.

Edwards in Des Moines: Helping the Poor and Middle Class

This article doesn't do justice to Edwards' plans to help the poor, but does mention some of his ideas to help both the middle class and the poor.

Democratic presidential hopeful John Edwards on Thursday unveiled a plan that would increase taxes for the wealthy and create tax breaks for the middle class.

"It's time for us to put America's economy back in line with our values. It's time for us to put an end to George Bush's war on work," he told a packed theater at Grand View College in Des Moines, Iowa. "It's time to restore fairness to a tax code that has been driven completely out of whack by the lobbyists in Washington, by the powerful interests in Washington and by those who value the few above the interests of many."

He added that, "It should not be in America that the middle class carries the tax burden, and that's exactly what's happening."

Edwards' plan would fix what he called a "rigged" system by ending tax breaks to Washington insiders with wealth and corporate power. Those are the same people, he said, who keep politicians in power.

"We have crony capitalism. We have lobbyists who are there every single day working to rig the system, and it is rigged," he said, referring to insurance, oil and drug companies.

Among the proposals, Edwards would make long-term savings easier for low-income families with "Get Ahead Accounts" that would match savings up to $500 per year. He also would provide a tax credit he calls work bonds, which would also be matched and would go directly into savings accounts. He proposes exempting the first $250 in interest, capital gains and dividends to allow low-income families to get a start on savings tax-free.

In addition, Edwards proposed reforming the earned income tax credit for low-wage workers. He called for changing tax laws to cut the marriage penalty for up to three million families. He also wants to expand the child care credit, and allow families to use those credits to save for their future.

More

T is For Taxes and TIF

As recently pointed out on this blog, TIF as a tool, needs tweaking, but so do property taxes. Iowa has a tax structure that is not seen as fair to either residential property owners or business interests, therefore neither group is happy. To this end, the Iowa legislature ran in circles trying to please commercial property owners wishes, but, at the same time, not biting the hand that votes for them--you and me. Hence, they did nothing--which, let me express, is good. Better to do nothing than come up with another "rob Peter to pay Paul" scenario.

This tug of war surrounding property tax creates some interesting problems for us like the issue I care most about, affordable housing. If I am a developer and I can build either apartments where I pay taxes at 100% of the property value or build "apartments" and call them condominiums, for which I will pay the rollback % of residential property value which in Johnson County is roughly 46% of value. Now granted, at the end of the day, it is either the renter or the condo owner who pays the taxes, but it does affect the cost of doing business for the period of time I have no tenants or owners--and, if I'm building apartments, it further impacts the amount of rent I will charge--which can end up affecting the rate of occupancy.

On the other hand, if I am a residential property owner, if my taxes were to more than double--to make everyone pay at the 100% level, many people would be forced to sell their homes. So you can see where politicians are not going to do that.

This is where the TIF (Tax incremental financing) comes in. Cities need their economic bases to grow, in part because they know that they have limited local control over their tax revenues (thanks to State government). However, the deal with the devil is that cities have to offer tax abatement to attract business, because the theory goes, if we don't, the next town will. So the cities create a local "rollback" for new or expanding businesses in the form of tax abatement for a period of time. Peter Fisher has a great article in the Press-Citizen today that addresses this. Also see this document that explains TIF from the organization I chair, FAIR.

On a local level, we expect a lot of our local governments in terms of public safety, but we also demand a lot of things that cost a lot to furnish, and we value as necessary. Things like parks and senior centers, neighborhood services, city planning, leaf pick-up--all have significant costs. But the thing that costs a ton of cash is infrastructure--roads, sewers, sidewalks, traffic lights--no one is offering a rollback to the city or county to provide these things.

The cost of doing business for communities is negatively elastic, that is to say, the price to buy and offer services increases over time and above the general inflation rate (due to personnel costs and material costs). This is why we are hearing the call for another penny sales tax, on top of what the school district recently had approved by voters. Cities like Iowa City are trying to keep up and not add a direct property tax. They are considering to do what the state is struggling no to--to get revenue any way they can that won't cause voters to hate 'em.

Unfortunately for local governments like ours, the politicians are paid as part-timers and not particularly gifted at making a sales tax pitch. Besides that, it is not non-controversial to hike the sales tax, as it affects certain people (the elderly, fixed and lower income people) more dramatically than others. Still, as Tip O'Neill loved to say, all politics are local politics.

What is needed is a set of priorities where taxation is concerned. No taxpayer should be unfairly burdened, nor should any taxpayer expect special dispensation at the expense of other sectors. This means reevaluating the way we do business as a state and as localities and developing coherent policy that allows localities more flexibility in structuring taxes and debt.

The Social (and Global) Divide in Iowa

The Des Moines Register yesterday posted the latest poll results showing John Edwards and Mitt Romney ahead in Iowa according to 801 prospective caucusgoers. What was much more interesting to me was the division on the priority of the importance of issues between Republican and Democrat caucusgoers.

For example, while Democrats put the war in Iraq on top of their list, it comes in number four to Republicans. Where terrorism and national security are number one and two on the list of Republican's priorities, they are number five and seven to Democrats. Maybe the biggest disconnect between Democrats and Republicans on foreign policy is on relations with other countries where Dems place it at number two, Republicans place it at number 12.

On the domestic front, health care, the nation's long-term debt, and the economy and jobs were the Dems top three priorities, while faith and values, immigration, and abortion were the top three Republican priorities.

The only point of agreement appears to be tax policy as a priority (Dems placed it 12th and Reps, 9th)--although it is highly unlikely that Donkeys and Elephants agree about the means, I'm sure everyone would prefer lower taxes.

For those of us who feel that global climate change is real, neither party's caucusgoers share our concern--Dems place it no higher than 11th and it is dead last among Republicans.

If statistics are to be believed, it would appear that the country is more ready for a black, male president (Barack Obama has a 74% favorable rating with 15% of Republicans saying they would support him), before a female president of any color. Although 50 percent of Republicans would like to see Condoleeza Rice run and Hillary Clinton is seen as favorable by 66% of caucusgoers.

Ah, but the caucus season is young and the passions for candidates and issues will likely ebb and flow as January 2008 creeps toward us.

SILO Passes--permanently?

Despite of several inches of snow falling in Johnson county and a 15.9% total voter turnout, the SILO tax passed in Johnson County by over a 2/3 margin. The sales tax will go into effect July 1.

REGISTERED VOTERS 80,078

8,329 67.36%
4,036 32.64%

With Johnson and Linn counties in the fold, it is likely that the tax will be made permanent by the Iowa state legislature in the near future.

SILO Should be Farmed Out

In my part of Iowa there is an election on Feb. 13th to decide whether an additional 1% sales tax will be invoked.

The best way to decide which way to vote for any tax is to understand what it is and how it works. Go here to learn the nuts and bolts about SILO. Here's a map of where SILO and other supplemental taxes exist.

When you view the map, you will find that Johnson and Linn counties are the only two without the SILO and Johnson is the only one without any supplemental taxation. One might conclude, these two counties (and the voters, therefore) are swimming against the tide. I would conclude that these are two very wealthy counties who have historically been relatively fiscally-conservative.

Education is a very important to the future of Iowa, but when pragmatists see their choices as yes or no, they tend to take the path of least resistance (which in this case is yes). In case you haven't figured it out, I'm a populist and a progressive, not a pragmatist and based on my values, these are the reasons I will vote against the SILO:

1) The state formula for funding schools does not take into account the real cost of education (yes, school infrastructure is a real cost) and there should be an increase of per student allocations to the localities to address this disparity. This is a statehouse issue.

2) Sales tax is regressive--this means people who can't afford an additional 20% increase in their sales tax are at the mercy of those who can. Speaking of which, if you can afford to part with 1% of your disposable income, Community Foundations need your cash.

3) Accountability: it is clear how the funds can be spent on paper, but it is not clear how needs must be prioritized or, indeed if needs truly exists. Though there is a requirement for using SILO to provid a justification for a project, it is not rigorous, nor bound by anything more than the whims of the school board membership.

4) Education is inefficient because of the inherent castle-building that occurs within school districts. Ignoring obvious economies of scale, such as consolidating school district administration/boards, transportation, sports facilities, supply purchases, facilities planning, etc. are examples of ways school districts can use their resources better.

5) This particular SILO referendum is heinous because it is promotes greed in enacting it--we are getting something for nothing (shoppers from other counties drop millions in taxes in the two communities that are not shared back home) for 5 years we won't have to share our resources with the other school districts--using that kind of logic, don't approve the SILO and we won't either.

6) Property taxes can be rolled back by the SILO, but it helps more affluent homeowners, not low-income renters. Since taxes are paid invisably in the price of rent, landlords are likely to pocket their savings and not reduce rents.