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TAX POLICY GREATEST MISSES

September 09, 2008

David Brunori, a state tax specialist at Tax Analysts, says ($link):

I'm looking for readers' opinions on particularly bad (or good) tax policies. I'm contemplating making a list of the top 10 best and worst tax policies in operation. Don't be shy. Send an e-mail with your thoughts to dbrunori@tax.org.

Here's my quick Iowa-centric list, progressing from bad to worse:

Historic rehab credits and tax breaks that have helped create a glut of unsold housing in Downtown Des Moines at a time when houses are also languishing unsold in the suburbs.
Having the highest corporation tax rate in the nation (12%), and coupling it with a tax system so riddled with loopholes that very little tax is collected. It's the worst of both worlds - it scares away business without actually raising revenue.

A bi-partisan refusal to lower rates in exchange for eliminating deductibility of federal taxes. This creates year-end tax planning headaches to no economic purpose. Except, of course, creating fees for me for year-end planning work.

De-coupling state rules from federal rules. This increases compliance headaches for businesses and individuals while creating a fiscal problem down the road when the federal breaks turn around (e.g., depreciation).

Targeted Iowa tax breaks for "new jobs" and "expansion." These breaks go to businesses that would be in Iowa anyway. Iowa takes money from existing businesses and uses it to lure and subsidize their competitors, and they reward shakedowns from businesses that threaten to leave.

Enormous tax breaks individual companies, notably Microsoft and Google. At $500,000 per job, I could give the state at least as much economic bang for the buck if they gave me the money to hire a household staff.

Tax credits for film production. Iowa has tax credits to fund half of the cost of films produced here. It's difficult to imagine a policy that could be stupider than taxing every other business to fund Hollywood projects.