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LOW RATES VS. TARGETED TAX BREAKS IN SIOUX CITY SENATE RACE

October 27, 2006

If you're looking for a lab experiment on whether low tax rates are better for economic health than high tax rates with lots of targeted incentives, you don't have to look past Sioux City, Iowa. Sioux City "enjoys" Iowa's 8.98% top individual rate and our highest-in-the-land 12% corporate tax rate. This tax misery is treated with over 20 economic development tax credits under Iowa law.

Across the river, Sioux Falls, South Dakota has no income tax credits to offer; they have no personal or corporate tax at all.

These two approaches to tax policy are the focus of a State Senate race in Sioux City. From the KTIV website:

Thursday night, Republican Barbara Blanchard squared off with Democratic incumbent Steve Warnstadt on this and other issues, at a candidate forum sponsored by the League of Women Voters.

Both Barbara Blanchard and Steve Warnstadt say they have a solution to make Iowa more attractive to business.

While Blanchard says Iowa needs to lower corporate and property taxes to stay competitive with border states like South Dakota, Warnstadt says Iowans need to turn to Ethanol for job growth.

Yes, that will help us compete with South Dakota; they don't grow any corn there, do they? Corn alcohol is only a cure for Iowa's economy if you're a bartender.

“It will create jobs that will not be exported. That can't be said for a lot of other industries. The state needs to take a leading roll. There's other tax credits that we could be pursuing in a targeted way, such as historic preservation tax credits, that would again be a boon to Sioux City," says Warnstadt.

If tax credits would be a "boon" to Sioux City, why is Sioux City not booming with the historic preservation credits and 20+ targeted tax credits we already have?

Blanchard disagreed saying, “We haven't begun to become competitive with South Dakota. We absolutely have to here in Northwest Iowa, go for zero corporate taxes. We have begun with some tax incentives. Those are going to wear out eventually, or have to be renewed and they are not going to be competitive with the zero corporate taxes in South Dakota."

Anybody who advocates more targeted tax incentives should have to explain just how many more it will take.

Related: IOWA'S TAX CLIMATE: STILL IN THE BOTTOM TEN

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