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TAX FOUNDATION: IOWA NINTH WORST STATE FOR BUSINESS TAXES

February 28, 2006

The Tax Foundation has issued its annual ranking of state business tax climates (summarized here). Iowa, unsurprisingly, is one of the worst - worse even than California, if you can imagine that.

Source: Tax Foundation. Click graphic for larger view.

How'd we do it?

Generally the index rewards tax codes that are neutral; that is, they have low, flat tax rates that apply to everyone. This makes tax law simpler and more transparent and avoids double taxation.

The worst state tax codes tend to have:

• complex, multi-rate corporate and individual income taxes;
• above-average sales tax rates that don’t exempt business-to-business purchases;
• complex, high-rate unemployment tax systems; and
• high effective property tax rates, as well as a host of other wealth-based taxes.

Iowa leads the way to the bottom in the first category with its highest-in-the-nation 12% corporate rate. We have very complex individual and corporate systems riddled with special-interest incentives and credits. So what is the legislature doing about it? Trying to get down to number 50, as far as I can tell. Some examples:

- A bill (HF 2045) has passed the Iowa House to exempt pension and social security income from tax. This creates a favored group of taxpayers, adds complexity to the code, and requires higher rates from taxpayers outside the favored group.

- A bill (HF 2052) would allow a deduction for cars that burn E-85 fuel.

- HF 2261 would create an " Individual income tax deduction for dentists who receive state medical assistance reimbursement less than their normal fee."

- HF 2274 would provide an "Individual and corporate income tax credit for purchase and installation of methane gas conversion property by livestock producers to be used to generate electricity."

What these all have in common is that they give a small group of taxpayers a break - which means everyone not benefitting pays more. And there are lots more bills like that in the hopper. While carving up a raft of new tax breaks to buy votes, the legislature is ignoring the dire need to lower rates and get rid of the rat's nest of exemptions, credits and special favors that makes our tax law business-hostile.

Look out, No. 50 New York, we're coming at you.

 • Eye on the Legislature ~ • Iowa Tax Law       Bookmark: del.icio.us • Digg • reddit