The Facts About Tax Reform In Iowa

Three changes are essential:

•  Plugging tax loopholes through which multistate corporations drain millions from the Iowa treasury every year. Twenty-one states, Illinois among them, do this with something called “combined reporting.” It works.

•  Cutting spending on corporate tax breaks with a responsible cap on tax credits. This would enable the state to focus only on sensible incentives for Iowa jobs and return more dollars to the treasury than they cost.

•  Finally, making our state tax system competitive, fair and transparent. One smart reform would allow lower tax rates by eliminating Iowa’s “federal deductibility.” Those most affected, but hardly affected: our wealthiest taxpayers, who have benefited from break after break through the last decade.

In each case, decisions made by people not elected to make state policy — corporations or federal officials — are affecting our budget options without the consent of the people we do elect to make those decisions.

We will focus here primarily on the third item, part of the tax reform legislation being prepared for debate this week in the Iowa House.

First, we must get past the heated, misinformed and intolerant rhetoric that marred a public hearing at the Statehouse last week, driven by well-funded and well-organized opponents of tax reform. Beware the spin. Be informed.

To understand “federal deductibility” and this reform plan, know these points:

•  Eliminating federal deductibility enables a cut in tax rates for every Iowan. At the top, it’s a cut of two full percentage points.

•  Under the reforms, some people will pay more and some less. On average, people making under $125,000 a year would see either no change in taxes — or a tax cut. Overall, a vast majority would pay the same or less tax as before.

•  In the United States, 70 percent of small-business people make less than $125,000. Ignore tactics designed to scare small-business owners; on balance, it doesn’t hurt people making that income.

•  Finally, while many focus on numbers of people paying more or less, the individual changes by household are not great in either direction, at any income level. Not surprisingly, there’s not a big impact on state revenues next year — either none, or a cut.

The long and the short is this: Contrary to vacant political talk, our state has a serious structural revenue problem, caused by many years of (1) tax-cutting and (2) neglect of tax loopholes that smart lawyers and accountants have found for their big corporate clients.

Those choices are costing us money, but they’re not buying us more or better jobs. They have made our tax system unfair to too many: working families, single moms and seniors, small-business people on Main Street.

Stick to the facts. Tax reform will give us lower rates, a simpler system, and a more competitive image for our state. Everybody wins.

Mike Owen of West Branch is former editor of the West Branch Times.

The Progressive Cedar Valley Voices Project – in the West Branch Times, is a citizen response to state Rep. Jeff Kaufmann’s column during the legislative session.