Iowa Tax Reform in 2005?I caught a few reports on Tom Vilsack speaking to the "Iowa Taxpayers Association" yesterday on WOI Radio with proposals to reform the Iowa Tax Code, and today David Yepsen writes a column with some of the highlights.
I point you to the column to read Yepsen's comments on the details of the proposal, but here are the points Vilsack addressed:
Eliminate federal deductibility.
This proposal has been on the table for some time. Iowa is one of the few states that allows you to deduct federal taxes from your state return - but in order to make up for the smaller taxable income, tax rates are kept higher than they would be without the federal deduction.
It is a little disappointing that we treat this as an urgent proposal. Truthfully, I imagine that this subject is better talk-radio fodder than substantive input for corporate accounting departments.
Eliminate the state income tax on all pension and Social Security income.
The reason that Yepsen atrributes to Vilsack for this strikes me as fairly odd:
In the past, he rejected this idea, arguing that since the state already exempts some of this income, exempting all of it would benefit only well-to-do Iowans.
When I think of friends and relatives that rely on Social Security and pensions to provide retirement income the term "well-to-do" is not the first term that comes to mind.
Considering that increases in property taxes and health care costs have hit seniors on fixed incomes particularly hard, providing whatever relief we can with the state tax code seems to be a good idea.
The trick here, however, is to keep such a reduction revenue-neutral. (Of course, this also depends on what is meant by the phrase "some of this income" - does anyone know what the limits are?)
Expand the base of the sales tax.
The examples used by Vilsack seem to make sense:
He wants the sales tax to apply to more services, such as engineering and accounting fees.
As the legislation-writing unfolds, we should keep an eye on "which services" are taxed. (Yepsen accuses Vilsack of pandering to his interests by exempting legal services from taxes. There are arguments to be made, but I do know that a wage earner is far more likely to use the services of a lawyer than the services of an engineer.)
Allow Iowans to vote on any proposal to increase sales- or income-tax rates.
Yepsen calls this a "compromise" position - but it seems to be a horrible idea.
Why? When we're in a situation (as we are now) where all reserve funds for state government are tapped, the legislature will need some flexibility in raising funds without going through an electoral process to approve small increases in service and sales taxes.
Do we really think we could do without some vital services (such as last year's cutbacks in State Patrol hours and patrolled territories) while we wait six to nine months for an election to be held?
I would feel better about this proposal if state funding was on firm footing - but it's not. Last year's budget was balanced by using "one time" sources of funding: tough decisions will have to be made this year regardless of the political situation.
Besides - if our we don't want our legislators to make decisions on fiscal and economic policy, why elect them in the first place? For the "social issue showboating" that last year's GOP leadership highlighted?
Create a higher state earned income tax credit for lower-income Iowans and make it refundable.
This is agreeable, however I am bothered by the notion that changes to tax policy are the only way working families can see an increased standard of living.
I would like to see this proposal go hand-in-hand with some form of increase in the minimum wage and a strengthening of labor laws.
I'm obviously not a tax-law policy wonk, but those are my first reactions to what is likely to be the first topic introduced in Vilsack's "State of the State" address.
What are your thoughts?
