Tax Update Blog: Eye on the Legislature 2009 Archives
Lots of changes
April 30, 2009
Roger McEowen has put together a great summary of Iowa tax changes arising out of the recent General Assembly session.
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Tax return mission creep
April 29, 2009
Get a load of this recently-passed Iowa legislation (SF 389, Sec. 26):
Beginning with the income tax return for tax year 2010, a person who files an individual or joint income tax return with the department under section 422.13, shall report on the income tax return, in the form required, the presence or absence of health care coverage for each dependent child for whom an exemption is claimed.a. If the taxpayer indicates on the income tax return that a dependent child does not have health care coverage, and the income of the taxpayer's tax return does not exceed the
highest level of income eligibility standard for the medical assistance program pursuant to chapter 249A or the hawk=i program pursuant to chapter 514I, the department shall send a notice to the taxpayer indicating that the dependent child may be eligible for the medical assistance program or the Hawk-I program and providing information to the taxpayer about how to enroll the dependent child in the appropriate program. The taxpayer shall submit an application for the appropriate program within ninety days of receipt of the enrollment information.
So now instead of just trying to collect the revenue to feed Iowa's government, now the Department of Revenue is also helping to enforce mandatory applications for government-sponsored health insurance. I'm not sure what the penalties will be if you plead "none of your business."
Next up? Maybe a tax return line requiring parents to disclose whether the children are allowed too much time in front of the TV, and whether they are eating their vegetables. It can't possibly be good tax policy to use tax returns as a disguised social welfare questionnaire.
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Federal deductibility survives; Corporate NOL carrybacks don't.
April 27, 2009
The General Assembly went home for the year after 5 a.m. yesterday without killing the Iowa deduction for federal taxes paid. They were never able to get the 51st vote they needed to get this tax increase through the Iowa House of Representatives.
Yet Iowa taxpayers didn't escape undamaged. Perhaps the nastiest knock was the repeal of corporate NOL carrybacks starting with 2009 losses. So all you corporations with losses, you just better hope that they'll cut you in on the big bonding boondoggle, as they won't let you get back your own taxes just because you are losing money.
The Department of Revenue will also get to keep your tax refunds an extra month without paying you interest. Like the NOL carryback repeal, this was part of a bill that put a cap on certain corporate welfare tax credits - a morsel of fiscal sanity wrapped in a poop sandwich.
The legislature never did conform with the latest federal extenders, so taxpayers taking the educator expense deduction or the tuition deductions on their federal returns will be out of luck on their Iowa returns.
They did manage to find time to expand the Microsoft/Google boondoggle to more server farms and to worsen the glut of unrented real estate by increasing the cap on historic rehab credits.
It always could have been worse. The legislature never did pass the proposal to allow counties and municipalities to impose their own income taxes, for example. Unfortunately, they'll be back again next year for a new round of fiscal incontinence.
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They kicked 'em when they were down
April 24, 2009
The Iowa House tonight went along with the repeal of Iowa's corporation net operating loss carryback, effective starting with 2009 losses. After rejecting an amendment to strip the loss language from the bill (SF 483), it passed on a 52-48 vote. The bill also limits the use of corporate welfare tax credits and allows the department of revenue to keep your tax refund longer without paying interest.
If your corporation is having a tough 2009 - and who isn't? - remember, your legislators think they need the money to stimulate the economy more than you need a carryback refund to keep your doors open and your employees paid.
Prior coverage: Kick 'em when they're down: Iowa looks to raise taxes of businesses with losses
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Frenzy day at the statehouse?
April 24, 2009
Reporter Charlotte Eby hints at her Twitter feed that the Iowa Legislature might pull an all-nighter to maximize the damage complete their business for the session and adjourn.
Open tax items include:
- The potential retroactive repeal of the state income tax deduction for federal taxes paid.
- The disallowance of corporate net operating loss carrybacks starting with 2009 losses, in favor of a carryforward-only system.
- A potential cap on the amount of corporate welfare tax credits to be issued.
It could be an interesting day.
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Great moments in legislative compromise
April 24, 2009
Governor Culver: Let's spend $750 million we don't have on things we don't need.
Iowans: No, let's not.
Legislature: OK, $650 million, then.
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Kick 'em when they're down: Iowa looks to raise taxes of businesses with losses
April 22, 2009
A little-noticed hidden tax increase advanced in the Iowa House yesterday. The bill (SF 483), primarily touted for putting a cap on corporate welfare tax credits, would also end the ability of Iowa corporations to carry net operating losses back to recover old taxes. Instead, they could only carry losses forward.
This bill is a tax increase on businesses that can least afford it - ones that are losing money. A simple example:
Bob Corporation makes $200,000 in Iowa-source taxable income in 2008, its first tax year. It pays Iowa tax of $17,500. Like with so many businesses, things go bad in 2009 and Bob loses $200,000. Between the two years, Bob has no income. Bob throws in the towel and closes the business after 2009.Under current law, Bob could carry the 2009 loss back to 2008 and recover the taxes paid. It's a fair result - no income for two years, and no tax. Under the proposed change, Bob would never recover the 2008 tax. The 2009 loss could only be carried forward - a useless privilege when the business closes.
HF 483 has passed the Iowa Senate and was voted out of the House Ways and Means Committee yesterday. If you want it stopped, call your legislator today.
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An Iowa Corporate Welfare Frenzy
April 21, 2009
As busy as they are in scrambling to get out of town, the Iowa General Assembly still finds time to give more of your money to the well-lobbied by way of tax credits. Three bills advanced yesterday:
- HF 810, providing credits for "small wind innovation zones," passed the Senate unanimously. It's already cleared the House, so now it goes to the Governor. This way you can pay for people to build windmills, whether or not they make economic sense, and whether or not there is transmission and storage capacity in place for the power generated.
- SF 481 eases requirements for qualifying for the old building rehab credit, and it raises the annual limit for credits from $20 million to $50 million. This bill passed 86-3, even though Downtown Des Moines is full of empty rehabbed residential units, the state is participating in the nationwide real estate slump, and the state still hasn't figured out how it will balance its budget in the upcoming fiscal year. This already has passed the Iowa Senate without dissent.
For what it's worth, the three House dissenters were Democrats; Every legislative Republican, and all but three Democrats, voted in favor of this spending (and it is spending, just spending disguised as tax reduction).
-HF 824, expanding the Microsoft/Google giveaway to more server farms, passed 91-1, with Des Moines' Bruce Hunter again casting the sole vote on behalf of those of us who are not out-of-state multi-millionaires. Unfortunately, the state failed to pass the much more worthy bill to help a locally-based accounting firm that has already created as many jobs as Microsoft will, at a fraction of the cost.
But there's more! A press release from Senator "All-night Long" Murphy promises to expand our 50-percent filmmaker subsidy. HF 818 will make it easier squander still more of your hard-earned tax dollars to subsidize itinerant filmmakers who deign to film here before they go back to their Hollywood mansions.
Tourists throng downtown Des Moines, filming location of part of the 1990s remake of "The Puppet Masters
All of this frantic spending on well-lobbied business interests comes in the face of a flicker of sanity in this score: SSB 1316 , which would cap economic development tax credits at a mere $175 million annually. That bill has passed the Senate, but hasn't moved out of committee in the House. It's easier to spend a lot of your money than to save a little.
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Big week for federal deductibility
April 20, 2009
This may be the last week before the Iowa General Assembly heads home for the year (promises, promises), and several key tax issues remain unresolved.
The biggest issue, of course, is the attempt to repeal Iowa's deduction for federal income taxes. The bill seems to be stuck one vote short of passage in the Iowa House of Representatives. Any Iowan who had a big balance due payable to IRS last Wednesday should watch with great interest: the repeal would be retroactive to January 1, and the cost of paying those federal taxes will have increased by 6.98%.
The state also has yet to fully conform with the federal law for several items that affect many returns, including the deduction for teacher expenses. The Department of Revenue had to reverse its initial guidance when it became clear the legislature was dragging its heels in conforming Iowa computations to the federal rules. It doesn't appear that they will.
Also, additional server farms are trying to climb on board the Microsoft/Google corporate welfare gravy train. They count on Iowa's time-honored economic development philosophy of taxing you to lure and subsidize your competitors.
It should be an interesting week.
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Can Iowa survive a limit on its subsidies for Hollywood?
April 10, 2009
It's suddenly occurred to our legislators that our current no-limits subsidy program for filmmakers may not be entirely wise. The Des Moines Register reports:
Companies that create high-quality jobs in Iowa, film movies or television shows in Iowa, or invest in a targeted areas would collectively have to split $175 million a year in tax credits, under a plan before lawmakers.
Maybe this means some legislators finally are beginning to realize that "tax credits," and especially "transferable tax credits," is just another way to say "spending." For example, the outfits that generate film credits often have no Iowa source income, so they sell the credits at a discount to people who do. It's just as much a loss to the state as if somebody drove an armored car full of income tax deposits into the Mississippi - and with about as much long-term economic benefit.
Another way to look at it: it's spending in the same way as the Democrats' proposed $100 per-college-student beer money tax credit.
Unfortunately, the learning curve at the statehouse appears to be steep:
Republican lawmakers said this would thwart growth if the state caps the tax credits.
The more you spend, the more you save? With that kind of budget outlook on the supposedly thrifty side of the aisle, it's no wonder the state is having money trouble.
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Beer money: the fix for the federal deductibility bill
April 09, 2009
Finally we may have the details of the "improvements" to the bill to repeal Iowa's deduction for federal taxes paid. An amendment (H 1484) is available this morning for HR 807. I assume this is the leadership bill, as it is sponsored by House Ways and Means Committee Chair Shomshor.
If this is how they "improve" the bill, I'd hate to see how they'd make it even worse.
The amendment does three things:
- It increases the standard deduction to $2,710 (from $1,750) per taxpayer;
- It slightly increases the rates for brackets for 2009 over the amounts in the original bill starting at $5,628 of taxable income (but not the top bracket);
- It provides a refundable $100 tax credit for Iowa resident undergraduate students - but not for their parents. Refundable credits are cash subsidies - you get the money even if you have no tax.
In other words:
- A tax cut for non-itemizers.
- A tax increase for itemizers.
- Beer money!
It does nothing to fix the biggest flaw in the bill: the increase in the state's highest effective marginal rate. But it will give my kid $100 whether he goes to school in Iowa or elsewhere this fall, and by golly, that's what this state really needs.
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Iowa House goes home for tonight without taking up deductibility repeal
April 08, 2009
The deductibility repeal bill, HF 807, never came up today on the House floor, and there is no new language for the bill.
The stories on the progress of the Democrat's repeal negotiations with themselves leave enough unsaid to indicate that agreement may be more elusive than they wish to let on. For example, the Des Moines Register reports this afternoon:
Culver indicated there are concerns with the bill. House Democratic leaders have declined to talk about the issue this week.“I think we’re getting very close to an agreement. At this time, to have 75 percent of the people either get a tax break or no increase is a good thing. But, as a case with a number of issues right now, we don’t know if we’re going to be able to get consensus completely.”
The story also says the Governor expects the bill to provide a $54 million tax cut - a new wrinkle that hadn't been mentioned before today. Given the state's budget problems, that raises new issues that may make a deal even more difficult to reach.
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Whither the deductibility repeal?
April 08, 2009
H.F. 807, the bill to repeal the deduction for federal taxes on Iowa 1040s, is on today's Debate Calendar for the Iowa House of Representatives. It doesn't appear that the "improved" text of the bill designed to get the Governor's backing is available to the public - I can't find a copy, and the Department of Revenue has so far been unresponsive to requests for copies of its analysis.
Last night the IowaABI reported on its Twitter feed that the bill would not be debated today. Of course, that can change, but that would imply that the repeal isn't yet in the bag. With legislative leaders wanting to leave town by the weekend, time is running short. Let's hope the clock runs out before this half-baked bill can pass.
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Federal deductibility debate OFF for tomorrow...
April 07, 2009
...reports the IowaABI Twitter feed:
House leaders announce that HF 807 which raises taxes on small business will NOT be debated Wednesday-Unclear if or when it will come up
Have the "improvements" not yet convinced 51 Democrats to vote "yes" in the House? They want to go home by this weekend. Time is short; stay tuned.
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Federal deduction repeal debate tomorrow in Iowa house
April 07, 2009
The Iowa Association of Business and Industry reports via their Twitter feed that the House debate on HF 807, the current version of the federal deductibility repeal bill, is set for tomorrow. Any slender hopes of stopping the bill rest in the House of Representatives, where the Democrats can only lose five votes.
Update/retweet: 4/7, 7:30 p.m.: Now the debate is off, reports IowaABI.
The changes to the bill to ensure passage don't seem to be available yet; the most recent amendment on the General Assembly website is dated April 1.
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Surprise! Federal deductibility repeal would be retroactive
March 27, 2009
The text of the bill to repeal the deduction for federal taxes on individual returns (HSB 284) is out. First impressions:
- The repeal is effective for 2009. That means taxpayers who have a big balance due on their federal returns from 2008 get a really raw deal. On the other site, it looks as though if you have a refund coming, it won't be taxable.
- $63,350 is the new $125,000. The promoters of the repeal say it will only affect "households" with incomes over $125,000. Wrong. The top rate, and the tax increase, kicks in at $63,350. The "$125,000" figure apparently assumes two-earner couples with each earner getting at least $63,350. Iowa's rate structure taxes each earner separately.
I haven't had a chance to analyse how much tax cut, if any, results from the rate cuts at the lower brackets. Otherwise the "middle class tax cuts" are pretty lame:
- An increase in the income cap for the tax-credit for pre-school enrollment, from $45,000 to $50,000.
- An increase in the personal tax credit for blind and elderly from $20 to $40
- Increase the earned income tax credit from 8% of the federal credit to 9%.
It is a tax increase at much lower income levels than advertised. It will be interesting to see how it will fly.
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What's worse policy than federal deductibility? A higher top marginal rate.
March 27, 2009
Iowa's deduction for federal income taxes is a bad tax policy, but there are worse ones. Raising the state's top marginal tax rate in the middle of a severe recession is surely worse. And that's exactly what the current Democratic proposal to repeal the deduction for federal taxes would do.
For top-bracket federal filers who don't pay alternative minimum tax, the top Iowa tax rate for each additional dollar earned is about 6.026%; for AMT taxpayers, it's as low as 5.837%. This is the additional Iowa tax incurred considering both the deduction for Iowa taxes on the federal return and the federal taxes deducted on the Iowa return. It ignores phase-outs of exemptions and deductions that provide a hidden higher bracket.
Making it worse by comparison
The Legislature Democrats would eliminate the deduction for federal taxes paid while lowering the top stated Iowa tax rate from 8.98% to 6.98%. They tout this as making Iowa's top bracket "competitive" with Nebraska's top rate of 6.84%. They are right, but not in a good way. When you do the math, you see that they are increasing Iowa's top effective rate from lower than Nebraska to higher (and, of course, much higher than South Dakota's top rate of 0%).
The top effective marginal rate is key to businesses considering where to move. Entrepreneurs typically structure their businesses as "pass-through" S corporations or partnerships, so they pay the entire business tax on their 1040s. Increasing their top tax effective rate sure won't attract them here.
Larger corporations looking to locate new facilities are mindful of the top individual rates because that affects how they have to pay their personnel there. Raising the top individual rate means that they have to pay their key people that much more to get them to move to Iowa; that makes it that much less likely to go to the trouble.
I still haven't seen the final language of the proposal. The sponsors insist that they aren't increasing total taxes; they're just passing a "middle class tax cut" by sticking it to the rich. Perhaps, though it's suspicious that they are suddenly fascinated with tax policy just as tax revenues are falling drastically.
The least convincing argument I've heard for the repeal is this statement in the Democrat's press conference yesterday:
It's not every day you can give a tax cut or no change to two-thirds of Iowa's taxpayers.
Yes, we can! In fact, if you do nothing, you give "a tax cut or no change" to three-thirds of the taxpayers. The "tax cut or no change" weasel-wording makes it sound like "no change" will be a very common result, with things going badly for the non-favored "one-third."
What real reform might look like
If the politicians were looking to really reform Iowa's tax system, they'd be using federal deductibility repeal to lower rates, without sticking it to "the rich." They would be looking to lower the rates still further by getting rid of the rats nest of personal credits, and by removing the many exemptions for favored taxpayers like old folks. They'd repeal Iowa's thirty-odd economic development credits. We'd end up with a top individual rate below 5% and a drastically lower corporation rate (ideally 0%).
Instead, they just want to build in more special breaks while raising the top effective rate. This isn't reform; it's just politics.
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A long way of saying 'corporate welfare'
March 19, 2009
From SF 142, passed yesterday 50-0 by the Iowa Senate:
Division I of the bill creates an innovation and commercialization development fund in the state treasury under the control of the department of economic development,consisting of moneys appropriated to the department and of any other moneys the department is authorized to place in the fund. The department is authorized to use the moneys in the fund for purposes of facilitating agreements and enhancing commercialization in the targeted industries, for increasing the availability of skilled workers within those targeted industries, and other purposes specified in the bill. The targeted industries are advanced manufacturing, biosciences, and information technology.
"Facilitating agreements and enhancing commercialization?" That means nothing, which means it can mean almost anything. What it really means is "give money to people who work the system."
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Pay up, granny!
March 17, 2009
Just in case Iowans are clamoring for a new tax on folks in nursing homes, our politicians are ready to meet the need:
Nursing homes would pay the tax, which would be about 3 percent of residents' cost of care, state officials estimated. If homes pass the expense on to their residents, it would equal about $1,970 a year for someone who pays $180 a day for care. AdvertisementSome of that money would go back to Iowa nursing homes, redistributed through Medicaid payments to homes that care for low-income elderly Iowans.
Some of the money would come back to the nursing homes? What a great deal! Maybe they can supplement it with a tax on wheelchairs and walkers, to get some of those old folks who still live at home.
Link: SSB 1179
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Iowa Tax Legislation tracker now up
February 23, 2009
We have finally added our 2009 Iowa Tax Legislation tracker to the site. We will monitor the progress of tax bills, especially as the Iowa legislature talks of tax reform, or at least of raising taxes by eliminating federal deductibility.
We've added a handy new feature: color-coding of the bill sponsors in the now-standard format of blue for Democrats, red for Republicans, to make it easy for readers to see where a bill is coming from and what its prospects are (hint: "red" = round-file).
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