This week may see the start a discussion of the future of Iowa tax policy. The Iowa Association of Business and Industry Tax Committee meets Thursday to discuss proposals for the future of the Iowa income tax.
There’s a lot to talk about. The Tax Foundation puts Iowa among the bottom-ten states in its 2015 Business Tax Climate Index. Iowa has the second worst corporate tax ranking and the highest corporation tax rate of any state. We also have a subpar individual tax ranking. Along with the high rates — and made possible by them — the Iowa income tax is full of special favors for influential and sympathetic interests. This makes the taxes expensive and difficult to comply with and not so good at collecting revenue.
The state legislature has not seriously addressed income tax reform in recent years. There has been no movement against the awful corporation tax that I am aware of. The Republican caucus has pushed an individual “alternative maximum tax,” one with lower rates and a broader base — that would co-exist with the current system. That has an obvious flaw — everyone would compute their tax both ways and pay the lower tax. That makes the system more complex. But all tax reform has been bottled up by the Democrat-controlled Iowa Senate.
What are the ingredients for Iowa tax reform? A good tax reform discussion should consider:
Repeal of the Iowa corporation income tax. The Iowa corporation tax provided $438 million of the the state’s 2014 revenue, out of $7.545 billion. Corporation income taxes discourage in-state growth and are expensive to enforce. The state would be better off without it.
Repeal of all incentive tax credits. The state has many tax credits, some of which are refundable, including the R&D tax credit. Simply eliminating the tax credits would recoup some of the lost revenue from a corporation income tax repeal.
Move the individual income tax to an AGI-based system. Eliminate state itemized deductions and special state deductions and use the savings to lower the rates. Such as system would only retain a few itemized deductions to prevent abuse of taxpayers, principally the deduction for gambling losses.
Don’t be Kansas. That state enacted a poorly conceived tax reform effort a few years ago, and it has been a mess. Ambitions for tax reform have to be reconciled to revenue needs. While I think the state should spend less than it does, we can’t assume it will do so. Tax reformers need to present a plan that is revenue-neutral, or close to it.
Jared Walczak, How High Are Property Taxes in Your State? (Tax Policy Blog). With this map:
Iowa still has relatively high property taxes, even after the recent property tax reforms. But we have high income and sales taxes too.
Russ Fox, Two Sets of Returns Aren’t Better than One:
Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?
This is what Russ might call a Bozo tax offense. It’s not like this sort of thing will go very long without someone noticing.
Jason Dinesen, Glossary: Estimated Tax Payments
Annette Nellen, Innovation box tax reform proposal, A good explanation of a bad idea.
Kay Bell, IRS says free identity theft protection services are tax-free. “That’s very good news for me, since I was part of the huge OPM hack”
Paul Neiffer is on the road on The ProFarmer Midwest Crop Tour.
Jim Maule, Rebutting Arguments Against Mileage-Based Road Fees. I think an expansion of tolling is more likely, but I don’t think that is very likely either.
Jack Townsend, Ninth Circuit Requires a Filing for Tax Perjury Charge. “Under the facts, Boitana had merely presented the false return to the agent, but that presentation was not a filing.”
Peter Reilly, Let Irwin Schiff Die With His Family Not In Prison:
You don’t have to agree with Irwin Schiff’s views on the federal income tax, to feel sympathy for Peter Schiff’s request that his father be released from prison. Irwin, now 87, has been diagnosed with lung cancer and it seems likely that he will not live to see his July 26, 2017 release date.
I think the government has made its point.
Patrick J. Smith, D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1) (Procedurally Taxing):
The weakness of the majority opinion in Florida Bankers, together with the strength of a dissenting opinion filed in the case, as well as the inconsistency of the majority opinion not only with the Supreme Court’s Direct Marketing decision but also with other D.C. Circuit opinions, all make the Florida Bankers case a strong candidate for en banc review.
The suit challenges the FATCA rules on foreign reporting.
Matt Gardner, Latest Inversion Attempt Illustrates U.S. Can’t Compete with a 0 % Corporate Tax Rate (Tax Justice Blog). It could with a zer-percent rate of its own.
Renu Zaretsky, Tax plans and presidential candidates: The future [may or may not be] now. The TaxVox headline roundup talks about presidential candidate tax plans and the bleak outlook for the IRS budget under the current Commissioner.
If you think of government programs as technology, they are hopelessly behind. We regulate communications using the FCC, which is 1930s regulatory technology. We address health care for the elderly with Medicare, which is 50-year-old technology.
In the private sector, when an enterprise becomes technologically obsolete, it falls by the wayside. In government, it gets larger.
News from the Profession. Yep, Almost All Accounting Firm Partners Are Still White Guys (Caleb Newquist, Going Concern). Well, I still am, anyway, and I don’t see that changing.