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WHAT THE LEGISLATURE IS UP TO

February 14, 2005

Here's your one-stop update on the tax doings of Iowa's elected wise ones.

BILLS THAT SHOULD BE IN A HURRY, BUT AREN'T

TSUNAMI: The Senate last week passed the bill (SF 76) to give Iowans the same 2004 deduction for Tsunami relief donations made in January 2005 allowed for federal taxes. The House version of this bill (HF 70) languishes in the Ways and Means Committee.

DEPRECIATION: The bill (HF 102) to allow Iowans to "catch up" their 2003 "bonus" depreciation and Section 179 deduction has passed the House entirely and has cleared the Senate Ways and Means Committee. The bill has been gathering dust on the floor of the Senate for nearly two weeks now. Hundreds of tax returns around the state are stalled pending passage of this bill. Maybe they have something more important to work on.

They reconvene this afternoon; let's hope they move things along.

(UPDATE: Not today!)

BILLS THAT ARE INTERESTING

Senator David Miller has proposed a sweeping overhaul of Iowa's tax system - property, income and sales taxes. He would expand the sales tax base to include groceries, change Iowa's individual income tax base to federal adjusted gross income, and redo the property tax base. Perhaps most boldly, he would repeal Iowa's corporate income tax.

Iowa's corporate tax makes no sense. Its 12% rate is only tolerable for Iowa corporations because single factor apportionment based on sales eliminates 90% or more of taxable income from the tax base for decent-sized Iowa C corporations. The Iowa tax primarily ensnares non-Iowa corporations that make the mistake of creating taxable nexus here, or who can't avoid doing so for other reasons (say, they have to use I-80 for their trucks). All in all, corporate income taxes netted $144 million in revenue for Iowa in fiscal year 2003 - 1.7% of an $8.26 billion revenue base.

In real life, the corporate tax is mostly a plaything for the state's economic development department, giving them a frame to hang Iowa's 19 economic development credits. It it would be better for economic development to have no corporate tax than our byzantine high-rate tax with lots of loopholes.

David Brunori of Tax Analysts specializes in state and local taxes. He is certainly not a "small government" kind of guy, but he has concluded that state corporate income taxes just don't work:

I am no fan of the state corporate income tax. Not because I think corporations should not pay taxes, but because I don't think the states can effectively and efficiently levy a tax on corporate income.

BILLS THAT ARE DYING A DESERVED DEATH

We have noted the proposal to exempt Iowans under 30 from personal income taxes. We have not commented on another proposal to freeze property taxes for those over 65. Both proposals appear doomed. Those of us left in the middle who would otherwise pick up the slack can breath a small sigh of relief.

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