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BUSMAN'S HOLIDAY

April 18, 2006

As I linger over my coffee and the morning paper at home today, I see that David Yepsen has a sensible piece explaining in simple terms the problems with Iowa's tax system, and the outline for the solution. He discusses a recent Tax Foundation study which says that today is Iowa's "tax freedom day":

For example, the foundation said that in 2004, Iowa's individual income-tax collections were $663 per person, which ranked us a more reasonable 24th. Our corporate income-tax collections averaged $30 per person, which ranked Iowa a low 46th nationally.

So how can an income-tax system with the fifth-highest rates generate a burden that is 24th? How can a corporate income-tax system with the highest top rate in the country create a load that is near the bottom?

It's a bunch of Rube Goldberg tax breaks.

Mr. Yepsen says the state would be wise to go with either a "Democratic" approach of repealing the deductibility of federal taxes on Iowa returns or a "Republican" approach of a flat tax. I say do both. By getting rid of federal deductibility and the raft of loopholes economic development, ethanol, etc. tax breaks, you should be able to get Iowa's top rate down to maybe 4% and eliminate our worthless corporate tax at the same time. The lower the rates, the better for everyone. Except maybe those of us who charge by the hour for tax planning, that is, and for the "economic development" professionals who peddle loopholes for a living.

Mr. Yepsen also mentions a new Iowa tax reform group, "Iowans for Discounted Taxes," which I hadn't heard of before. According to Mr. Yepsen, the group has a strange proposal to enact a simplified tax system and let Iowans use either the current system or their new one. As a tax professional, that should delight me, because that would mean I would do everyone's taxes twice and choose the lower bottom line. As somebody who just finished tax season, though, the thought of doing two Iowa returns for everyone gives me the willies. Still, it's good to see a true tax reform group springing up. The biggest tax lobby in the state, Iowans for Tax Relief, is just a loophole lobby, pretty much useless in the tax reform debate.

UPDATE: I see my old buddy and lapsed Iowan David Hogberg is on the board of Iowans for Discounted Taxes. Small world...

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