Editor’s note: The Fine Print is a column on fiscal policy matters written by CFI’s Carol Hedges that appears regularly in The Colorado Independent. Here’s the latest installment.

By Carol Hedges

Colorado workers are gathering at the Capitol at noon today, calling on the state legislature to ask Congress to raise the federal minimum wage to $10.10 an hour. Then the workers are heading a few blocks away to continue their rally at, appropriately, a McDonald’s.

No doubt, some state lawmakers will flatly oppose an increase of the minimum wage, which is $8 an hour in Colorado — higher than the federal minimum of $7.25 hourly.

Critics will argue that the people predominantly affected by the minimum wage are middle-class high schoolers flipping burgers for a few hours after school to buy new skateboards or video games. Lawmakers espousing this theory would benefit by stepping out of the statehouse and toward the McDonald’s, where they’ll see workers who are parents and grandparents doing their very best to support their families on the $320 a week, at most, they make before taxes.

Opponents will say that an increase in the minimum wage will hurt jobs. Some will cite a widely misinterpreted Congressional Budget Office report warning that 500,000 jobs — 0.3 percent nationally — could be lost if the minimum wage is raised. What they’ll likely fail to mention is that the research also said zero jobs or one million jobs could be affected. Five-hundred thousand was the middle number, so that’s what CBO went with.

Naysayers also will complain that the legislature shouldn’t involve itself in a Congressional fight.

Those views are out-of-touch and short-sighted.

A recent Wall Street Journal/NBC News poll shows that increasing the minimum wage to $10.10 an hour garners overwhelming national support, including 47 percent of Republicans surveyed.

Research tells us that warnings about job losses and economic damages are either grossly overstated or unfounded. A landmark 1993 study showed that raising the minimum wage had negligible to no impact on unemployment. A 2009 review of 61 scholarly research papers on the topic also showed, on average, no effect.

A 2010 study by one of the foremost researchers of the minimum wage, economist Arindrajit Dube at the University of Massachusetts Amherst, found that minimum wage increases don’t cost jobs, but actually can help stabilize workforces by decreasing turnover and job vacancies. Most recently, a 2013 study by the Center for Economic and Policy Research said “evidence points to little or no employment response to modest increases in the minimum wage.”

Congress has raised the minimum wage 22 times in the 75 years since it was created. But, for nearly 50 years, increases haven’t kept up with inflation. Had that occurred, the minimum wage would be $10.56 an hour. Instead, the purchasing power of minimum wage workers is the lowest it has been since 1955.

What can’t be overlooked in the all-too-misinterpreted Congressional Budget Office report are these potentially history-changing figures: a minimum wage increase would raise the earnings of 16.5 million Americans and lift 900,000 people out of poverty.

The increasing debate over minimum-wage is spurring a much-needed national discussion about the ever-widening schism between the haves and have-nots. The issue is so ripe that, in a filing with the Securities and Exchange Commission earlier this month, McDonald’s Corp. publicly acknowledged the “long-term trend toward higher wages and social expenses in both mature and developing markets, which may intensify with increasing public focus on matters of income inequality.”

You read that right, folks. McDonald’s — the nation’s quintessential low-wage employer — is talking about income equality. Attitudes are changing both morally and economically. Colorado lawmakers will be faced with a rally call for progress this afternoon. Let’s hope they take some time to step out of the Capitol and recognize the appetite for change.

Picture from The Denver Post article that ran with Sunday’s article, showing two of the nation’s most generous billionaires, Bill Gates and Warren Buffett.

The Denver Post ran an article on income inequality in its Perspective section on Sunday that highlighted data in Colorado provided by CFI. The article also featured comments from CFI’s executive director, Carol Hedges. Check it out online.

A quote from Hedges in the article: “As we concentrate wealth, we’re also concentrating power in the hands of the wealthiest Americans.”

Editor’s note: “The Fine Print” is a column on fiscal policy by CFI’s executive director, Carol Hedges, that runs in The Colorado Independent. Here’s the latest installment that ran in The Independent today.

By Carol Hedges

The legislature is considering more than 20 bills to give tax breaks to select groups of Coloradans. Some of the measures would affect large numbers of people — such as 55,000 low-income working families. Others would give special treatment to just a handful — 12 space industry companies, for example. The total estimated cost of these bills, if all were approved, would be more than $200 million in fiscal year 2016-17, the first year most of the proposals would have an impact.

But real costs of this type of “tax code” spending take more several years to set in. One bill, a tax credit to companies for jobs they create, would cost state taxpayers $500,000 in fiscal year 2016-17 but $55 million in fiscal year 2027-28. Another that would give a tax credit for the costs of private schools would cost $59 million next year and grow to $284 million in 20 years. The General Assembly seems to want to hand out tax credits the way Oprah hands out cars. One big difference, though, is that Oprah is spending her own money while tax credits spend everyone’s money. Another difference is that Oprah does her lavish gift-giving publicly on TV, while state tax credits typically are passed quietly — and usually with little media coverage — at the statehouse.

Spending on schools, human services and health care is scrutinized every year by the budget committee. The full legislature votes to approve the budget based on estimated public revenues and whether spending fits into those revenues.

Tax code spending, in contrast, goes largely unmonitored. There is no committee responsible for reviewing tax data to see if specific tax credits are working. There are no public hearings in which citizens can request that tax breaks be re-prioritized or spread out for greater impact. Because credits affect the amount of revenue the state collects each year, funding those credits trumps all the “appropriated” spending in each year’s budget. In other words, tax favoritism get first priority. It’s the fiscal woodwork that, despite its high price tag, rarely gets noticed.

Don’t get me wrong — using the tax code to motivate behavior isn’t always a bad thing. Other states have had enormous success using tax credits to help low-income working families pay for child care and encourage farmers to donate excess food rather than letting it go to waste. Those forms of tax code spending yield tangible public and economic returns.

But other states also have experience with tax credits that don’t work, including sales tax holidays for purchases of school supplies as proposed in HB 1097. While promoted as cost savings to consumers, experience in other states shows that retailers tend to increase prices during sales tax holidays and that many families cannot postpone purchases until the tax free days. The conservative Tax Foundation sums it up best, “experience shows that the claims of economic stimulus, increased revenue and consumer savings are greatly exaggerated. States see little net economic activity as a result of sales tax holidays; the holidays instead represent a costly-to-administer revenue loss for the government.”

The question is whether limited public dollars in Colorado should be used to yield largely private returns, such as profits for companies and their investors. Should the creation of a job by a company warrant a tax break?

In the last few years, we slashed school budgets to the roots. And this year, proponents of restoring those cuts are being told the state can’t commit to ongoing investments because revenue growth is too tentative. We should proceed prudently on investment and spending. We should think about the future as we evaluate where to spend the tax dollars we have in hand. It is that very prudence that should guide all decision-making on using public dollars, including proposed tax credits.

Tax dollars are extremely limited. And the demand for public investments is high, particularly after back-to-back recessions have hindered our ability to support our schools and maintain our roads. Colorado’s General Assembly has a long pattern of adopting new tax credits when revenues are growing, then having to cut spending or repeal other tax credits when the economy stalls. The standards we apply to crafting our annual state budget should be the same standards for tax code spending. Public expenditures should, at a very minimum, be transparent and equitable, regardless of the relative vitality of the economy.

9News recently hosted a segment on wage nonpayment in Colorado and used data from our recent report, Wage Nonpayment in Colorado Final (1), on the topic. Watch the video here.

CFI has talked a lot about tax credits this legislative session. Last week, CFI Director of Communications Tim Hoover chatted with Jon Caldara, president of the Independence Institute, about tax credits, deductions and expenditures and why we support some and oppose others.

Note: Capitol Gains is a bi-weekly feature on fiscal happenings in the Colorado legislature.

By Ali Mickelson

I’ve got 99 problems, but tax expenditure reporting isn’t one!

On Monday, Feb. 24, the Senate voted unanimously to pass CFI’s first bill of the session on to the governor for signature! HB 1018 permanently extends the Colorado Tax Profile and Expenditure report.  This is a huge step toward increased transparency and accountability in Colorado’s tax code, and we are thrilled our legislators saw the value in this important report. 

Introducing: Taxpayer Protection!          

HB 1285, the Taxpayer Protection Disclosure Reporting Act, was introduced last week in the House.  Our second CFI bill of the session requires that paid tax preparers provide a disclosure statement to potential clients with important information about the preparer, including the preparer’s background, qualifications, contact information and fee schedules. 

We know that choosing who prepares your taxes can be a difficult decision, especially since the consequences of tax filing errors can be devastating. That is why we believe Colorado taxpayers need to know what kind of training the person preparing their tax returns has, how they charge for their services and how to reach them in case there’s a problem later. To ensure this basic level of transparency and accountability, we are working to pass HB 14-1285.

This bill is already off to a great start with three excellent prime sponsors (Rep. Ryden, Sen. Aguliar and Sen. Johnston) and 11 co-sponsors in the House, including the speaker and the chairman and a majority of the members of the assigned committee — House Business, Labor, Economic and Workforce Development. 

The bill is scheduled to be heard on March 11, 2014. To see the factsheet on this bill, please click here: Taxpayer Protection One-pager FINAL.      

Everybody (still) gets a tax credit!

Nearly halfway through the session, it is clear that Tax Credit Oprah is here to stay (click here for last week’s blog on this topic). Twenty different tax credit bills have already been introduced and many have passed through their first committee of reference, in spite of testimony on the priorities in the budget that don’t get funded Colorado continues to give away tax dollars to special interests. In the last two weeks alone, CFI has testified against four different tax credit bills, ranging from a tax credit for property used in space flight, to a sales tax holiday for the purchase of firearms. We will continue to encourage the General Assembly to evaluate all tax breaks through a lens of efficiency, effectiveness and equity and will hopefully stem the influx of new giveaways in the process.  

By Chris Stiffler, CFI Economist

Twice in the past century we have seen the widest gaps between what the richest households make and what everyone else takes in. It’s probably no coincidence that these income disparities came in 1928 and in 2007 — the years preceding the biggest economic crises of the past hundred years: the Great Depression and Great Recession.

Indisputable evidence of widening inequality has been mounting for several decades, but only recently has it received the attention that it deserves. This is largely due to two things: more accurate data and the recognition that this growing gap is bad for the entire economy, not just some people.

Until recently it was hard to get a handle on income at the top levels because the U.S. Census lumped all income of $1 million or more into a single category. But now researchers have access to another data source that reveals the actual incomes of the highest income-earners, and stretches back before the 1920s. This source is IRS tax data, adopted from the research of economists Emmanuel Saez and Thomas Picketty. Now we can see a much more complete — though not very pretty — picture of trends in Colorado. The graph below shows the share of income held by the top 1 percent of Colorado taxpayers.

Income inequality reached a peak in 1928 before declining rapidly in the 1930s and 1940s and then more gradually until the late 1970s. From the end of World War II to the late 1970s all workers — from the lowest-paid to the highest — experienced similar growth in incomes. It was a period when the workers’ wages rose with productivity gains. That trend, however, has not continued. 

 The unbalanced growth since the late 1970s has brought the share of income held by just 1 percent of households back to its peak prior to the Great Depression. Since 1979, the top 1 percent of earners in Colorado captured nearly half of all growth in income, which has resulted in the top 1 percent’s income increasing by 200.8 percent while the income of the bottom 99 percent only grew by 21.2 percent. 

The Great Recession has made income inequality worse. In what can only be described as a staggering disparity, we now know that 95 percent of the gains since the end of the recession in 2009 have gone to 1 percent of earners. Meanwhile, the incomes of Colorado households in the middle — we’re talking households making around $57,000 a year — have fallen. Between 2009 and 2011, the incomes of the top 1 percent grew by 23.5 percent while the incomes of everyone else in Colorado (the bottom 99 percent) fell by 4 percent. 

Why is this a bad thing?

It’s becoming clear that drastic income inequality harms economic growth. That’s because 70 percent of all U.S. economic activity is driven by consumer spending. So members of a strong middle class are the real job creators because their spending power supports local businesses. Unfortunately, stagnating wages have seriously eroded that purchasing power, which translates to fewer customers for businesses and an economy-wide slowdown. 

 When introduced to this data, people often ask, “Which country deals with income inequality better?” The answer is, “The United States — of 50 years ago.” The period between 1940 and the late 1970s shows that there is nothing inevitable about the top incomes growing faster than other incomes and shows that growth in everyone’s wages is possible with the right policies that cultivate an educated, strong middle class with growing wages.

The economy does better when everyone does better — not when all the income gains are concentrated at the top, but when the middle class has the purchasing power to drive the economy forward. 

 Note: Capitol Gains is a bi-weekly feature on fiscal happenings in the Colorado legislature.

 By Ali Mickelson

This session, the Colorado Fiscal Institute is focused on smart revenue decisions that reduce income inequality and support overall economic prosperity. With that in mind, we are working to both promote bills that achieve this targeted goal as well as fight against bills that do not meet our principles of good tax policy. 

CFI has created a list of tax principles with which we evaluate all tax expenditures (credits, deductions, exemptions) that come before the legislative body. This year, with increasing revenue, legislators have been anxious to depart with funds through the tax code. Unfortunately, this can lead to rash decision-making and, what we at CFI lovingly call, “Tax Credit Oprah.”

Tax Credit Oprah is the notion that tax incentives are handed out the way Oprah gives away cars to her audience members. “You get a tax credit! You get a tax credit! Everybody gets a tax credit!”

Now, don’t get us wrong. We think it’d be great to get a free car from Oprah, but the difference between Winfrey’s generosity and state tax credits, exemptions and deductions is that Oprah is using her own money, not everybody else’s. And so if it’s everybody’s money  – funds that would otherwise be used for schools, higher education or other critical state services – that is instead being used to benefit individual taxpayers, shouldn’t there be some guidelines about when that’s OK?

We’ve developed our own set of principles for tax expenditures that we hope will assist policy makers in pursuing wise choices and help others understand why support or oppose certain proposals.

 CFI’s principles for evaluating tax credits, deductions and exemptions:

1. Is the tax credit effective?  When evaluating a new tax credit, CFI considers whether the tax credit is proven to meet a targeted goal. CFI also considers the return on investment from the tax credit when compared to the benefit and cost of investing in other state priorities. 
2. Is the tax credit economically efficient?  CFI evaluates all tax credits from an economic standpoint. A good tax credit will produce the intended outcome without significant additional cost or disruption to public spending or the economy. CFI also considers the behavior the credit is intended to incentivize and if this behavior would occur without the credit. 
3. Is the tax credit equitable?  Equity in evaluating tax credits focuses on who benefits from the favored tax treatment proposed by the credit or exemption and whether the beneficiaries, both direct and indirect, need the favorable treatment. All tax credits create winners and losers in the tax system, and CFI evaluates the impact of the credit on who pays taxes in light of who currently shoulders the largest tax responsibility. CFI evaluates the equitable distribution of the tax benefit based on ability to pay and other principles of equity. 
4. Will the tax credit be regularly reviewed and evaluated?  Tax credits, just like any general fund appropriation, need regular review to evaluate whether they are working and to let taxpayers know how their money is being used. In order to determine if a tax credit is achieving its targeted goal and is the best use of taxpayer dollars, tax credits must be reviewed and evaluated regularly based on a clear set of objectives. CFI always considers the measures of transparency and accountability that are included in any new tax credit or economic incentive. 
5. Will the tax credit decrease income inequality?  Growing income inequality is one of the top roadblocks to economic recovery because it limits the economic power of low- and middle-income families. CFI considers the impact of the credit or exemption on income inequality when evaluating any new tax credit. 

Watch for CFI this session, battling against Tax Credit Oprah, and for a copy of our tax principles including a list of bills that we oppose, click here:  CFI Tax Principles 2014 FINAL

Can you make ends meet earning the minimum wage? The New York Times has created a handy calculator that lets anyone enter the state in which they live and their expenses to find out. Spoiler alert: The answer is no.

As expected, the President’s State of the Union address highlighted policies that create good jobs, reduce income inequality and foster economic opportunity for all. Any ideas to build out the middle class, address wage stagnation and create ladders of opportunity for all Americans can’t come a moment too soon as just released employment statistics for the states show.

 Jobs

The new jobs numbers released Tuesday show mixed results for Colorado. The state continues to plod along a positive trend. In December 2013, Colorado had 29,500 more jobs than it did in December 2007, the start of the Great Recession, and 43,900 more jobs than this same time last year. However, the largest gain, 20.2 percent since 2007, was in education and healthcare. These sectors tend to have a number of jobs with lower pay. As just one example, the average home health aid worker in Colorado makes about $12 an hour. Sectors like construction and manufacturing, which tend to have higher paying jobs for middle-skill workers, experienced the greatest declines in Colorado during the recession. 

 While a small change overall, 1.3 percent, Colorado is one of only 19 states that experienced an increase in the number of total jobs since 2007.

 Despite gains, Colorado still has a jobs deficit. The state would still need an additional 187,500 jobs for employment growth to keep pace with growth in the working age population. (Table 1)

Unemployment

After peaking at 9.1 percent in late 2010, Colorado’s unemployment rate dropped to 6.2 percent in December 2013, 72 months after the start of the recession. This is lower than the national unemployment rate of 6.7 percent but still significantly higher than when the state entered the recession in 2007 and higher than the same point in the prior two recessions. (Figure 1)

In light of these numbers, policymakers from President Obama down to all 100 of the Colorado legislators hard at work under the gold dome right now should advance ideas that focus not just on jobs but family-supporting jobs that lift up the middle class and provide economic opportunity for all.