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AN IOWA TAX AMNESTY?

January 30, 2007

Governor Culver proposed his first budget today. As expected, the budget proposes a $1 per pack cigarette tax to help finance an 8.6% increase in spending, pegged to bring in $138 million. It also includes a requirement that some corporate groups file thier returns on a "combined" basis; this was also expected, and it's scored to raise $25 million.

The next largest source of revenue comes as a surprise: a "tax amnesty." As far as I know, this is the first time this has come up. No details of the amnesty are included in the budget document.

Amnesties are bad tax policy. Politicians like them because can help bring some cowering tax delinquents into the system, generating some additional revenue.

The downsides:

- They increase the "shmuck factor" of law abiding taxpayers. Folks who have stretched themselves to pay their taxes on time see the delinquents getting off the hook and become cynical about the system. They feel like schmucks.

- They create an expectation of future amnesties. Taxpayers will expect an amnesty to come along every once in awhile when a governor is short of cash. This would be the second Iowa tax amnesty since I started doing tax work in Iowa; the first was around 1986, and we were told it wouldn't happen again.

An amnesty can only work if it's both a carrot and a stick. Tax delinquents are warned that if they don't come in from the cold, they're really in for it. Repeating it makes the stick more like a wet noodle. It's like a pushover parent saying "I swear to God, one more time and I'm going to turn this car around and drive home" when the family is already 400 miles into the drive to Wally World.

But if we're going to Wally World, we might as well enjoy the billable hours, baby! ride. We eagerly await details of the amnesty.

Links:

Budget report (pdf)

Iowa Politics.com

State 29

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