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Who knew they manufactured anchors in Iowa?

February 23, 2012

The supergeniuses in the "Economic Growth/Rebuild Iowa" Committee have found a sector of the Iowa economy that actually pays Iowa's corporation income tax. It's the highest corporation tax in the country, so it's grievous to those few who actually have to pay it -- so they want to do something about it.

No, they aren't repealing Iowa's futile and awful corporation tax. They are building in yet another tax break: a convoluted adjustment to income for "certified suppliers to anchor manufacturers." (HSB 604) Apparently the single-factor apportionment -- allocating income to Iowa based on the destination of items you sell -- doesn't do much good for Iowans who sell to other Iowa manufacturers.

It would work like this:

The supplier gets a certificate from a customer saying the customer is an "anchor manufacturer," which means an Iowa manufacturer that sells at least half of its production out of state.

Then, if the taxpayer

-has at least ten percent of its payroll, or alternatively 100 employees, located in Iowa, and

-it "agrees to annually provide to the authority information and data on jobs created and capital investments made in the state by the business,"

It will get to reduce its Iowa taxable income by the amount that it exceeds 110% of its prior year income apportioned to Iowa.

In other words, it would cap annual income tax increases for the taxpayers qualifying for this break at 10%.

There is so much wrong with this bill and the thinking behind it.

The legislators apparently think they can fine tune an already byzantine tax law to help a favored constituency to cure an otherwise punitive income tax. They act as if they knew that helping the taxpayers that qualify -- and nobody else -- is the key to a healthy economy. They act as though manufacturers are uniquely burdened by Iowa's corporation tax, when it's at least as awful for every business subject to it. They act as though a manufacturer that sells outside of Iowa deserves more support than somebody who sells stuff we want to buy.

The reporting requirement is clearly designed to enable the politicians to crow about the jobs they "create" with this thing.

Searching a comprehensive 50-state technical service on state taxes reveals no other "anchor manufacturer" break. A search for the euphemism of "supply chain incentive" in various forms generates nothing. This appears to be an Iowa-only brainstorm.

If they really wanted to do something for Iowa's economy, they'd get rid of the Iowa corporation tax -- a minor part of Iowa's tax revenue, but a major source of complexity and administrative expense. They'd get rid of Iowa's rats nest of special interest credits and deductions and use the savings to lower tax rates. They'd enact something like the Quick and Dirty Iowa Tax Reform.

Image credit: Flickr image courtesy Stew Dean under Creative Commons license.

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LOL! Politicians will never cease to amaze/amuse me.

More duct tape and string, gentlemen! Actually that would be better. At least that isn't permanent - rather than a perpetual rent to a bunch of well-heeled politicians, lawyers, and lobbyists. No one can say Iowa lawmakers aren't about finding, creating and maximizing unproductive work. Very entrepreneurial.

I would just add:

The thinking, or the presumption, must be that there would be fewer Iowa jobs, or not as good, but for all the rigging and thingamajigging and whatever else they do at the Statehouse and the other building or two the State of Iowa owns in Des Moines. The reality is precisely the opposite.

It is as if a tree that falls in the forest doesn't actually if a politician isn't there to take credit for it.

And a job isn't created if there is no press release to brag about it!

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