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IOWA'S TAX CLIMATE: STILL IN THE BOTTOM TEN

October 11, 2006

Iowa retains its firm hold as one of the states with the 10 worst business climates, according to a new report by the Tax Foundation.

The Foundation's State Business Tax Climate Index rated Iowa's business tax climate 43rd out of 50 states this year. We are a hair ahead of Nebraska, but a mile behind #2-rated South Dakota.

Click to enlarge.

How did Iowa get such a lame ranking? Consider what the Foundation uses as criteria for a good tax system:

Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same. Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with these politically motivated preferences the less likely it is that business decisions will be made in response to market forces.

Without "politically motivated preferences" Iowa would hardly have an income tax. And it looks like our candidates for governor like that just fine.

The top 10 states in the rankings were:

1. Wyoming
2. South Dakota
3. Alaska
4. Nevada
5. Florida
6. Texas
7. New Hampshire
8. Montana
9. Delaware
10. Oregon.

Our companions at the bottom of the barrel:

41. Minnesota
42. Maine
43. Iowa
44. Nebraska
45. California
46. Vermont
47. New York
48. New Jersey
49. Ohio
50. Rhode Island.

The Foundation also has a piece on their site linking tax climates and economic growth. They note:

In fact, between 2000 and 2005, income in the top 10 states in the 2007 Index grew 44 percent faster than in the bottom 10 states. Employment in the top 10 states grew 115 percent faster, output 52 percent faster and population 164 percent faster.

Yet our candidates for governor think that what we really need are more tax breaks for old folks and more targeted tax credits. Look out, Nebraska!

UPDATE: Chris Atkins from the Tax Foundation sends us specifics on why Iowa has a rotten tax climate.

Tax Foundation Tax Climate Links:

Background Paper

Full Study (pdf)

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