41st out of 50. Iowa reclaimed its bottom-10 standing among the states in the 2015 Tax Foundation Business Tax Climate Index released yesterday. Iowa’s standing fell one spot from 2014.
The Tax Foundation report mentions Iowa’s highest-in-the-nation corporation tax rate, its high individual rates, and its complicated tax system. Iowa was rated as having the second-worst corporation tax system.
The Tax Foundation explains how the worst states got that way:
The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.
Even though Iowa’s complex and dysfunctional income tax is a long-standing embarrassment, it has been a non-issue in the current race for Governor. While he has occasionally said Iowa needs a better tax code, Governor Branstad’s administration has more avid about handing out tax credits to buy ribbon-cuttings than about fixing a tax law that burdens businesses lacking the pull to swing special deals. The tax law as it is seems to suit the Governor’s needs well enough now.
His opponent, Senator Hatch, is a big beneficiary of tax credits in his development business. As he makes a good living out of the tax law, he is an unlikely candidate for tax reform.
The report does hold out hope. North Carolina’s ranking jumped from 44th to 16th as a result of reforms enacted this year. If they can do it, maybe Iowa can too. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would eliminate the corporation tax and drastically reduce individual rates by getting rid of Iowa’s rats nest of politically-convenient deductions and credits, would be a great place to start.
David Brunori, Yes, More Problems with Tax Incentives (Tax Analysts Blog):
People who have studied tax incentives know everything that’s wrong with them: They don’t work (companies choose where to locate for other reasons); they’re unfair (some companies get them, others don’t, and their benefits inure to the haves rather than the have-nots); they’re inefficient (government bureaucrats can’t make decisions better than the market). There are many more.
We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.
Iowa saved from giving away $30 million in corporate welfare. Iowa loses $1.4 billion fertilizer plant to Illinois (Des Moines Register) “Previous news reports have said both Iowa and Illinois offered Cronus tax incentives of about $30 million.”
William Perez, How Saving for Retirement Can Reduce Your Taxes
Robert D. Flach reports on THE SAVER’S CREDIT NUMBERS FOR 2015. This is an underused credit that rewards frugality by lower-income taxpayers.
Jason Dinesen, IRS Oops on E-Services E-mail. “That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.”
Jim Maule, How Not to File a Tax Court Petition “First, stand in line and get that hand-stamped postmark. Second, avoid the need to learn the first lesson by treating the petition as due EIGHTY days after it is mailed. That provides a cushion of time, an allowance for unforeseen circumstances, and contingency insurance.”
Peter Reilly, There Is An Accountant Art Expert – Who Knew?
Kay Bell, Desert island bipartisanship, sort of, on new reality TV show. Apparently a reality show left two Senators stranded on a desert island for six days. A good start.
Howard Gleckman, Is There Any Chance Congress Will Pass Business Tax Reform Next Year? (TaxVox). “The chances are not zero. But the odds are very long.”
William McBride, White House Claims U.S. Effective Corporate Tax Rate is Competitive (Tax Policy Blog). Yes, the way the Giants were competitive last night in Kansas City.
News from the Profession. Things You Should NOT Say to a Brand New CPA (Leona May, Going Concern).
Recently-retired IRS agent Michael Gregory did an “ask me anything” on Reddit. It apparently didn’t impress everyone, if this report is to be believed:
Gregory accused Rep. Darrell Issa (R-CA), who has been leading the investigation of IRS misdoings, of playing politics with IRS funding, which led one Reddit user to offer a “summary” of Gregory’s comments:
From what I’ve seen so far
Lerner did nothing wrong
Darrel Issa is the devil
Throw more money at the IRS
Lack of criminal charges proves everything was just peachy and not politically driven
It’s all congress’ fault
Patriots pay taxes
The flat tax will let evil millionaires kill and eat babies
The IRS couldn’t ask for a better ‘leaker’
Other Reddit users agreed, with one complaining, “[Gregory] might as well have titled this AMA ‘having left the IRS, I am free now to reveal the IRS would be perfect if Congress just paid us more.’ I get that the IRS may be underfunded but this leaker might as well be an IRS lobbyist.”