Iowa’s elected leadership has come up with a deal to bring down Iowa’s high commercial property taxes in exchange for an increase in Iowa’s earned income tax credit. The Democrats who control the Senate have long been pushing for an increase in the EITC, and this seemed like an obvious compromise from early in the session. There will be much rejoicing if the deal gets completed, as appears likely; property tax reform has been the Governor’s highest legislative priority.
It’s too bad that the cost of a sensible property tax is a big increase in a program that is a poverty trap for honest taxpayers and a pinata for thieves. The phase-outs of the EITC result in shockingly-high marginal tax rates on each additional dollar earned by relatively low-income taxpayers.
The EITC is refundable, which means it is really a welfare program run through tax returns. About 25% of the EITC is claimed “improperly,” which is a nice way to say it’s stolen. The annual cost of the Iowa EITC boost is estimated at $35 million, so the price of fixing a broken commercial property tax regime is an $8 million annual thief subsidy. So while the politicians celebrate their great compromise, Iowa’s petty thieves also have occasion to raise a glass, filled by you.
It is unlikely that Republicans will find Paul’s smoking gun, but the IRS scandal is almost certainly the result of political bias on some level. It is hard to believe that a group of officials would innocently pick terms like “Tea Party,” “patriot,” and “9/12” to single out organizations for additional scrutiny. It would be incredible to find such disinterested tone-deafness even in the most politically insulated of civil servants (and the IRS is far from insulated).
I doubt the White House left fingerprints on IRS efforts to harass political opponents (though it didn’t lift a finger to stop it). That leads to an even more depressing possibility: that the IRS went out its way to beat up on the President’s opponents on its own. Nobody blew the whistle. That means IRS management is so corrupt and political that it would go after the administration’s political opponents with only a wink and a nudge. And anybody who doesn’t think this was politically-motivated is kidding themselves.
James Taranto puts it well:
And the IRS scandal was a subversion of democracy on a massive scale. The most fearsome and coercive arm of the administrative state embarked on a systematic effort to suppress citizen dissent against the party in power. Thomas Friedman is famous for musing that he wishes America could be China for a day. It turns out we’ve been China for a while.
Megan McArdle, Yes, What Happened at the IRS is a Scandal
Russ Fox, The IRS Scandal Reaches the White House
The Other McCain, Portrait of a Thug: IRS Union Boss
Peter Reilly, Bank Cannot Issue 1099-C And Subsequently Try To Collect
Fiduciary Income Tax Blog, Passive Income: Good or Bad?
Paul Neiffer, A Farmland REIT is Now Publicly Traded
William Perez, IRS Offices to be Closed on May 24
Linda Beale, How Apple avoids US taxes with shell games
Going Concern, Last Year Was a Very Unfortunate One to Be Wealthy and French, Even By French Standards. When marginal rates exceed 100%, you know a country is off the rails.
Robert D. Flach has a new Tuesday Buzz up!
The Critical Question: NFL Linebacker James Harrison Spends More On Massage Than You Did On Your House. But Can He Deduct It? (Tony Nitti)
Tags: Anthony Nitti, Branstad tax policy, EITC, Fiduciary Income Tax Blog, Going Concern, Linda Beale, Martin Sullivan, megan mcardle, Paul Neiffer, Peter Reilly, Robert D Flach, Russ Fox, Stephanie Fitch, TaxProf, The Other McCain, William Perez