Saturday, August 30, 2008

Laboring For Truth

The Iowa Policy Project (IPP) has just released it’s annual “The State of Working Iowa” report and things don’t look good. The report warns: “Stagnation in Iowa jobs and a continued decline in job quality have combined with high gasoline and food prices, flooding and housing pressures to present daunting challenges for Iowa’s working families on Labor Day 2008.” Colin Gordon, senior research consultant for IPP and co-author of the report said, “The numbers and some of the circumstances are new — but our basic Labor Day story remains: Iowans on balance are becoming less economically secure and having a tougher time getting by.”

Things needn’t be so bleak for working class Iowans, Gordon assures, “To get a new story line for Labor Days to come, our policy makers must grasp these realities and address them.” Policy makers apparently should “address these realities” by implementing IPP’s included recommendations. This assurance is not comforting considering IPP’s past policy recommendations that have been implemented and apparently are ineffective.

Last year the Democrat-controlled Iowa legislature and governor raised Iowa’s minimum wage to a rate higher than the current federal minimum wage and higher than most of Iowa’s neighbors. At that time IPP executive director David Osterberg crowed, “It’s nice to be ahead of the curve for a change. […] This will be good for low-income families, and will be good for Iowa businesses that depend on local purchases. It is a bright spot in an economy that is offering few such signs for low-income folks.”

“More income in the hands of lower-income families means they will have more to spend with local businesses. This is good for the Iowa economy,” Osterberg said in 2007. “A pizza shop owner should understand that better-paid pizza delivery people can more easily afford pizzas for themselves.” Given the glumness of the new report, apparently the pizza scenario prophesized by Osterberg must have broken down somewhere. Perhaps, since the pizza shop owner had to raise his prices to reflect the reality of his increased payroll expense, the pizza delivery guy couldn’t buy any more pizzas than he could before the minimum wage was raised. (There were plenty of factors driving prices up in 2008, but the minimum wage hike was definitely one of them.)

It’s not surprising that the minimum wage hike was not the promised panacea, given the mountains of research showing that minimum wage requirements don’t reduce poverty. For instance a 2002 study by David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found “no compelling evidence supporting the view that minimum wages help in the fight against poverty. Rather, because not only the wage gains but also the disemployment effects of minimum wage increases are concentrated among low-income families, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families.”

Since increasing government regulation and fiats didn’t seem to help, the 2008 IPP report recommends increasing government regulation and fiats. The minimum wage should be indexed for inflation, the report suggests, since it is already too low after less than a year at it’s current rate. IPP also recommends increased nanny-state meddling in childcare and healthcare. In short, more of the same.

If we truly want “a new story line for Labor Days to come,” we must close IPP’s report and turn to a recent policy study by Public Interest Institute, a non-partisan, market-oriented public policy research organization located at Iowa Wesleyan College. The title of the study explains it’s own findings, “No Income Tax: The Key to Economic Growth.”

Iowa taxes money when it is earned, through the state income tax. With the state sales tax it taxes the money again when it is spent. If you bought real property with that money, you are taxed again yearly to keep it, via property taxes. Essentially, Iowa taxes you coming, going and staying. No wonder the Tax Foundation ranks Iowa near the bottom of the heap on tax issues. Eliminating the income tax would help change that.

The Public Interest Institute study concludes, “States with low or no income tax are more attractive to individuals looking for a place to live and for businesses looking for a place to locate. Studies show that states with no income tax have higher rates of economic growth, have greater domestic in-migration, and are rated higher in the qualities that businesses look for when considering location.

“Iowa has an income tax, while our neighbor to the northwest — South Dakota — does not. South Dakota ranks better than Iowa in growth in total and per capita personal income, growth in state population, and growth in employment. South Dakota also has greater growth in the number of housing units, more hospital beds per capita, and lower rates of crime.”

The IPP and Public Interest Institute reports offer opposing roadmaps to a happier, more affluent and productive workforce in Iowa: the proven failure of government by fiat or the general success of free markets. Let’s hope Iowa makes the right choice.

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