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IOWA THINK TANKS AND TAX POLICY

May 23, 2007

The Des Moines Register today runs a piece with summaries of the tax reform positions of four Iowa policy groups.

The results are disappointing. Maybe the short format of the piece leaves out important parts, but what's left in is thin beer. Take this from Iowans for Tax Relief, the state's premier loophole lobby:

Jeff Boeyink, its president, said the group is willing to consider eliminating federal deductibility, but only if that step is coupled with lower rates and constitutional protections against future lawmakers turning around and raising those rates on the new, larger amount of taxable income. He said steps such as requiring a vote of the people or a supermajority vote of the Legislature on major tax increases could provide that protection.

Iowans for Tax Relief is a powerful lobby, and this position helps explain why serious tax reform has never happened. It conditions any tax reform on changes to Iowa's constitution, an almost impossible chore that takes three years to complete. Meanwhile the group continues to burrow new loopholes into the tax base; every beneficiary of these special interest deals has a stake in opposing tax relief.

Things aren't much better on the left. Here's what David Osterberg of the Iowa Policy Project has to offer:

He said Iowa's total tax burdens are at the national average. While some may complain about one tax being too high, that is offset by other taxes being lower than they are in other states. For example, while businesses complain about their high commercial property taxes, the state's corporate income tax is low. "Business taxes are low. Corporate income taxes are a fourth of what they were 20 years ago."

Iowa's corporation taxes are too low? We have the highest state corporate tax rate in the entire country. The only saving grace is that it is so riddled with loopholes that it is usually avoided easily. The decline in collections is a result of three things:

- Many businesses have opted out of the corporate tax system through S corporation elections or by setting up as limited liability companies or other partnership vehicles.

- Corporate tax departments are more sophisticated.

- Every year the legislature passes new or improved special interest tax breaks that eat away the tax base.

Mr. Osterberg doesn't even address the unbelievably complex and dysfunctional nature of Iowa's business income taxes. In fact, the four think tanks barely mention the role that special interest loopholes - movie credits, rehab credits, film credits, investment credits, venture capital credits (we have at least five of these), and on and on, have in keeping rates high. Without high tax rates, these credits are unaffordable; high rates themselves breed loophole-lobbying as tax self-defense - perversely making it harder to achieve low rates.

The Register also inexcusably fails to get comment from the libertarian-leaning Public Interest Institute, the lonely voice for sanity in Iowa's tax system among Iowa's think tanks, or Iowans for Discounted Taxes, an idiosyncratic group that favors an optional low-rate, low-loophole system alongside the current state tax system.

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