Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

IOWA SINKS CLOSER TO THE BOTTOM OF THE TAX POLICY BARREL

October 12, 2007

With our neighboring states providing brutal competition in insane tax policy, Iowa shows that in this area, at least, we can hold our own. Iowa has slipped one place, and now has the sixth worst business tax climate in the newly released 2007 State Business Tax Climate Index. Or, if you're a "glass is half-full" sort, we're the 45th best. We got there by edging out Nebraska, which rose two places to 43rd best.

Click to enlarge

How do we do it?

Iowa can once again trace its poor overall ranking of 45th to its income tax rates on both personal and corporate income. They stand out as a warning to entrepreneurs. Individuals face an escalating series of tax rates that hit 8.98% over $58,500. Only a handful of states tax any source of income at such a high rate, and even those high-tax states usually apply it to much higher levels of income. Iowa’s 12% corporate income tax is in a league of its own. No other state has a double-digit rate on the books.

It's worth noting that while almost all of the tax policy debate in Iowa right now concerns commercial property taxes, Iowa ranks only 19th worst in the Tax Foundation's Property Tax Index, but 6th-worst in the corporation and personal income tax indexes. What a wonderful illustration of the cluelessness of our statehouse policy establishment.

The report takes some time to address criticisms of prior business tax policy rankings made by the University of Iowa's Peter Fisher, concluding that "taxes do matter a great deal" -- a point obvious to most of us, if not to Mr. Fisher.

Even if you don't agree with the index, the report has a gold mine of state tax policy data. Personally, I think all legislators should repeat this part of the report daily, along with the pledge of allegiance:

States should strive to create tax systems that have a broad base and a low rate. Ultimately, that means that states must strive for tax systems that are economically neutral—systems that do not favor one economic activity over another—and systems that promote economic growth—by avoiding excessive taxes on business activities and keeping the cost of complying with the tax system as low as possible.

Tags: Iowa tax policy.state tax climate index.tax policy.

      Bookmark: del.icio.us • Digg • reddit