Posts Tagged ‘Peter Fisher’

Tax Roundup, 1/27/16: Sign right here, friend, it’s just paperwork! And: Tax Foundation vs. U of I prof.

Wednesday, January 27th, 2016 by Joe Kristan

20151124-1What you’re signing isn’t necessarily what the nice salesman says you’re signing. A sad tax story in the Des Moines Register today shows how easy it is for a taxpayer to commit to a bad deal. The story, Misclassified: Iowa won’t refund veteran’s $5K payment, tells how a maintenance worker who was erroneously paid as an independent contractor by a Cedar Rapids furniture store ended up conceding a $5,000 sales tax liability he didn’t owe.

Iowa imposes a sales tax on “Janitorial and building maintenance or cleaning” for non-residential buildings. Because he was paid as an independent contractor, Iowa asserted sales tax on maintenance man James Robertson. He argued that he should have been classified as an employee, which would make the sales tax go away.

According to the story, Iowa was hounding him for unpaid taxes and preventing him from renewing his driver’s license. So he settled with Iowa for a $5,000 payment. From the story:

But he did so believing that the money he borrowed from a friend would be returned once a federal review process he was pursuing verified his claim he was not a contract worker.

The Internal Revenue Service on Oct. 14 determined that Robertson was indeed wrongly classified, documents he provided to The Des Moines Register show.

But that doesn’t mean he gets his $5,000 back, according to the Department of Revenue:

Victoria Daniels, a spokeswoman for the Department of Revenue, said it’s unlikely Robertson can win an appeal because he participated in what her agency calls its “offer in compromise” program.

Robertson signed a document during the settlement negotiations saying he accepts that “all administrative and judicial protests and actions filed in relation to these taxes and tax periods be dismissed.”

“When a person signs an offer in compromise, one of the things that they are signing their names to is the fact that they are giving up their appeal rights and the rights to get any of that money back,” Daniels said. “When you sign an offer in compromise with the Department of Revenue you are signing away any appeal rights you may or may not have had.”

IMG_1287Mr. Robertson didn’t think that’s what he had signed, according to the story (my emphasis):

Robertson said the documents he signed pertained to unpaid tax liabilities, not to his rights to a refund for taxes he never owed. And he said the department collectors led him to believe a refund would be made in the event it was shown he’d been unjustly classified as a contract employee.

This is why any battle between an unrepresented taxpayer and a tax agency is an unfair fight. The taxpayer drew a distinction between tax liabilities and tax refunds that doesn’t matter here. It’s all just taxes. While the nature of the document he signed may have been obvious to the people at the Department of Revenue who work with these things every day, it was all new and unclear to a taxpayer who had never encountered an offer in compromise. I hope he can find a way to get back his $5,000.

The Moral: In any tax controversy, be very careful what you sign. There are a number of ways you can forfeit important rights. If the dollars are big enough to matter to you, hire a tax pro. It doesn’t appear that Mr. Robertson did. Having a guide to the bureaucracy can be a big equalizer in an unfair fight. It’s not right to have to pay someone to help you avoid a tax you don’t owe in the first place, but it might be necessary to avoid something much worse.



Peter Fisher

Peter Fisher

Joseph Henchman, Open Letter: Errors on Peter Fisher’s Grading the States Website. The brilliant Mr. Henchman takes on U of Iowa prof and tax complexity advocate Peter Fisher’s attack on the Tax Foundation’s State Business Tax Climate Index.

Like most people who dislike the Tax Foundation’s ratings, Mr. Fisher doesn’t like the Index because it doesn’t measure things he wants to measure. But the Index only tries to measure business tax climate. It doesn’t measure regulatory climate, or quality of education, quality of life, weather, or income inequality. And because it makes states with certain tax policy sets look bad, people with an affinity for high taxes or crony capitalism try to change the subject.


Paul Neiffer, What Gets a Step-Up. “I continue to get questions regarding how much of a step-up in cost basis farmland gets when someone passes away.  Again, as with most tax questions, it depends.”

Kristine Tidgren, Iowa Supreme Court Says Ag Lease Violates Iowa Constitution (Ag Docket). “Article I, section 24 of the Iowa Constitution states that no lease of agricultural lands ‘shall be valid for a longer period than twenty years.'”

William Perez, Should Married Couples File Taxes Separately? “The Married Filing Separately filing status provides fewer tax benefits than filing joint returns, but it does protect each spouse from any tax mistakes the other spouse makes.”

Kay Bell, 3 marriage-related tax tips to celebrate Spouse’s Day

Jim Maule, “Who Knows the Tax Code Better Than Me?”. “No, it’s not ME asking that question. Who asked it? According to this story, Donald Trump did.” I suspect Mr. Trump knows just enough to hire someone who really does understand the tax law.

G. Brint Ryan, Fee Arrangements are a Matter between Taxpayers and their Advisors. “In an important win for business against government encroachment, a California Superior Court recently invalidated a rule restricting taxpayers from paying performance-based fees for professional services.”

Robert Wood, Missing An IRS Form 1099 For Your Taxes? Keep Quiet, Don’t Ask!

TaxGrrrl, Executors Seek $100 Million For Work On Estate Of ‘Queen Of Mean’ Leona Helmsley

Robert D. Flach, WHAT IS GOFUNDME?

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.


TaxProf, The IRS Scandal, Day 993. “Citizens Against Government Waste, CAGW Names IRS Commissioner John Koskinen 2015 Porker of the Year

Jacob Sullum, Corny Crony Capitalism in Iowa ( “The RFS raises food prices and imposes a hidden tax on motorists because ethanol is more expensive than gasoline and produces less energy per gallon. Between 1982 and 2014, Manhattan Institute Senior Fellow Robert Bryce found, ethanol cost an average of 2.4 times as much as an energy-equivalent amount of gasoline.”

Howard Gleckman, Tyco, Tax Inversions, Income Shifting, and Lost Revenue (TaxVox)

Stuart Gibson, The Dissonance of European Tax Harmonization (Tax Analysts Blog). “The question: Why do so many Americans, even those new to the country or born to immigrant parents, find it so easy to self-identify as American, while so few Europeans identify primarily as European?”

Meg Wiehe, What to Watch for in 2016 State Tax Policy: Part 1 (Tax Justice Blog)


Career Corner. How Will Your Team Air Its Grievances This Busy Season? (Caleb Newquist, Going Concern).


Tax Roundup, 5/2/2013: Peter Fisher takes on The Tax Foundation. And I’m a video star.

Thursday, May 2nd, 2013 by Joe Kristan
Peter Fisher

Peter Fisher

Cage Match: Iowan Peter Fisher takes on the Tax Foundation.  Mr. Fisher has written a study for Good Jobs First, a left side advocacy group.  Mr. Fisher who shows up in The Tax Update occasionally, doesn’t care for the Tax Foundation’s Business Tax Climate Index:

The TF, on the other hand, despite claims to the contrary, ignores the consensus approach to assessing business taxes in the economic literature and attempts to portray the effect of state and local tax law on business profits in an entirely different fashion: by stirring together no less than 118 features of the tax law and producing out of that stew a single, arbitrary index number. That number turns out to bear very little relationship to what businesses actually pay.

Here Mr. Fisher makes the same mistake he makes when he defends Iowa’s highest-rate-in-the nation corporate income tax, which collects very little net revenue because it clobbers some taxpayers while paying generous subsidies to the well-connected and well-lobbied.  He concludes that means Iowa’s corporation tax doesn’t matter because of the low net collection.

A good business tax climate, to the Tax Foundation, doesn’t take money from some businesses and give most of it to other businesses; good policy is based on “simplicity, neutrality, transparency, and stability.”  I agree.

As the Tax Foundation explains in its response to Mr. Fisher:

 The problem here is that we do not claim to measure business tax burdens. We measure and rank tax structures, and this because the size of a tax is less important than the economic distortions it creates. This is a fundamental error in Fisher’s understanding of tax policy.

Mr. Fisher seems more focused on “equity,” whatever that means.  But even if you think the tax law should be used to punish the rich and reward low incomes, cross-border mobility makes state tax systems an awful place to to that.

Tony Nitti,  Overview Of The New 3.8% Investment Income Tax, Part 3: Gains From The Sale Of Property.   Tony discusses the ridiculous proposed rules on sales of pass-through businesses, among other things.

TaxGrrrl,  IRS Rolls Out More Proposed Regulations On Health Care As “Train Wreck” Comments Continue To Make Rounds.   “Train wreck” is a term that frequently makes the rounds in the vicinity of train wrecks.  This batch of regs covers “minimum value” for determining whether coverage disqualifies individuals from premium credits.

Trish McIntire,  First Time Penalty Abatement.  The IRS will usually abate minor penalties for first-time infractions, but they don’t like to talk about it.


Jen Carrigan,  Should You Expect an Audit?  A guest poster at Missouri Tax Guy’s place explains the IRS exam process.

Jason Dinesen,  Another Example of a Tax Scam E-Mail.   The IRS never contacts taxpayers by e-mail.

Kay Bell,  Tax moves to make in May 2013


Janet Novack,  U.S. Demands Wells Fargo Records To Identify Tax Cheats Using Caribbean Havens

Cara Griffith, Feeling the Impact of Impact Fees (


Paul Neiffer,  From 80 to 45 in 40 miles.  Temperature, not speed.  I get to meet Paul tomorrow, it should be fun.

Catch a Thursday Buzz from Robert D. Flach.


Video!  The Iowa Bar Association now is selling DVDs of “Notes from the Fiscal Cliff,” a January webcast I did with Roger McEowen of the ISU Center for Agricultural Law and Taxation.  The outline is here. Supply your own popcorn.



Tax Roundup, 10/18/2012: Iowa tax reform battle shapes up. Also: shaming the shameless.

Thursday, October 18th, 2012 by Joe Kristan

Battle lines begin to form on Iowa tax reform.  Iowa Governor Branstad appears to be preparing to take advantage of state budget surpluses to push a rate-cutting tax reform.  A story in today’s State Tax Notes ($link) foreshadows how the battle lines are likely to play out:

However, Iowa Policy Project Research Director Peter Fisher countered that to stimulate the economy the state should restore funding to post-secondary education to offset the cuts made during the recent fiscal crisis.

     Fisher also said that lawmakers should consider tax reform proposals that reduce the tax burden on lower-income families that often pay more in state taxes than federal taxes.

     “I think there is an equity issue there that should be addressed,” Fisher said.

Where Governor Branstad will focus on cutting rates, the opposition is likely to focus on spending (“restoring funding”) and on once again pushing for an increase in Iowa’s earned income credit, in spite of its built-in tendency to lock people into low incomes through hidden high tax brackets on the poor.

Peter Fisher is likely to provide the think-tank ammunition for the Governor’s opponents; as we have noted, Mr. Fisher thinks Iowa’s business tax climate is just fine, because it’s ineffective:

Fisher argued that the Tax Foundation’s rankings (State Business Tax Climate Index) misrepresent the state’s tax climate. He said that business tax collections as a share of the economy are actually below the national average.

The State Tax Notes piece has the likely response to Fisher-type arguments:

     Tax Foundation economist Scott Drenkard responded that while Iowa’s business tax burden may fall in the middle of the pack nationally, it has the highest top corporate tax rate in the country at 12 percent.

     The study’s rankings favor tax systems with a broad base and lower rate, Drenkard said. He added that a higher rate with a narrower base creates economic distortions.

Distortions like clobbering in-state suppliers to large manufacturers and in-state C corporations, for example.  Or corrupt boondoggles like the now-defunct film credits.

Related: The Tax Update’s Quick and Dirty Iowa Tax Teform Plan,


Howard Gleckman,  What the Joint Tax Committee Really Said About Tax Reform

The JCT plan is very different from other tax reform proposals. For instance, Alan Simpson and Erskine Bowles, the chairs of President Obama’s fiscal commission, designed a reform that could get rates as low as 28 percent, but did it by eliminating nearly all tax preferences (not just deductions) and scaling back the few that survived.

So, it turns out, JCT doesn’t contradict groups like the Rivlin-Domenci Commission or Simpson-Bowles, it  merely uses different assumptions.

Related: Peter Reilly,  Eliminating Tax Expenditures To Cut Rates – Early Results Are Underwhelming


Brutal Assault on Reason Watch: 

Roberton Williams,  How Much Revenue Would a Cap on Itemized Deductions Raise?  “Eliminating all itemized deductions would yield about $2 trillion of additional revenue over ten years if we cut all rates” by 20 percent and eliminate the AMT.”

William McBride, Second Debate Marred by Protectionist Rhetoric

Anthony Nitti,  Tax Aspects Of The Obama – Romney Debate, Round 2

Kay Bell, Taxes discussed, sort of, in the second presidential debate

 Jacob Sullum,   Romney Makes His Tax Promises Even Harder to Keep  (

Alan Reynolds, Obama’s ‘Trillion Dollar’ Tax-Cut Fraud  (National Review)

Jonathan Easley,  Sen. Kerry: Romney trying to ‘perpetrate a fraud’ with tax plan (The Hill)

Linda Beale,  Romney’s Tax (Mis)Calculations: if your two and two don’t add to four, pretend the laffer curve gives you more


TaxProf,   TIGTA: IRS Unjustifiably Withholds $181 Million in Relief from Tax Penalties from 1.5 Million Taxpayers.

Anthony Nitti,  S Corporation Shareholders: Is it Time to Consider Accelerating Income Into 2012?

Kay Bell,  It’s workplace benefits — including spending accounts — enrollment time

Robert D. Flach is having an OCTOBER HALF PRICE SALE on his worksheet packages.

News you can use: The 10 Most Corrupt Tax Loopholes (Village Voice, via the TaxProf)

Going Concern, PwC Employee Embraces the Cheapskate CPA Stereotype Like No Other.  When I worked for predecessor Price Waterhouse, I was cheap for lack of alternatives.

20090827-2.jpgWill “naming and shaming” intimidate Steven Seagal?  California has posted its list of “Top 500 Delinquent Taxpayers.”  While somebody better at celebrities could surely find more, I spotted a few familiar names:

Dionne Warwick,$2,598,968.65

Joseph Francis, $819,804.11.

Steven Seagal, $347,849.67

Joe Francis has had his share of tax issues, but can you really “shame” a porn magnate?


Tax Roundup, 10/10/2012: Happy Spiro Day! Also: Iowa’s business tax climate still frosty.

Wednesday, October 10th, 2012 by Joe Kristan

The Tax Foundation released its 2013 State Business Tax Climate Index.  Iowa dropped one place, to 42nd, switching places with Maryland in the bottom 10.  Iowa’s poor score has much to do with its terrible 49th-place ranking for corporation income tax.

Iowa scores badly on its corporation tax on a number of fronts:

– We have the highest stated corporation tax rate, and the second-highest effective rate taking the deduction allowed for half of the federal corporation income tax.

– Iowa has its own state corporation alternative minimum tax.

– Iowa no longer allows a corporation net operating loss carryback, distorting the tax on cyclical businesses.

– Iowa’s tax code is distorted by “incentive” tax credits that tend to favor pet industries and the well-lobbied.

Here’s what the full Tax Foundation report says about incentive tax credits (my links and emphasis):

Many states provide tax credits which lower the effective tax rates for certain industries and/or investments, often for large firms from out of state that are considering a move. Policymakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a bad business tax climate. Economic development and job creation tax credits complicate the tax system, narrow the tax base, drive up tax rates for companies that do not qualify, distort the free market, and often fail to achieve economic growth.

Recently Iowa City policy analyst Peter Fisher wrote an op-ed piece saying that Iowa’s corporation buisness climate is just great, largely on the basis that it doesn’t collect much tax.  A big part of the reason it doesn’t collect much is the special breaks granted to favored businesses by smokestack-chasing politicians.  The Tax Foundation notes that these “economic development incentives” don’t work, citing the work of none other than Peter Fisher. 

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan has a better approach to state business tax policy.  Key points:

– Abolish the state corporation income tax.

– Abolish all economic development tax credits and special deductions.  You name the special break, I’m against it.

– Lower the personal income tax rate to 4% or less with the money saved by eliminating complicated deductions, tax credits and subsidies.

Iowa’s political leaders —  both parties — trip over themselves throwing tax credits and special breaks around.   But does anybody think that “no corporate tax” wouldn’t be a better way to attract and grow industry than “we have dozens of special tax breaks if you know the right people”?


Tax Roundup, 9/27/2012: Misdirected charity edition.  Also: No, Iowa, you don’t have a good tax climate.

TaxProf,  2013 Business Tax Climate: Chilliest in Blue States

Russ Fox,  Why I’m Happy to be in Nevada and Not in California

Roberton Williams,  Marginal Tax Rates Matter More than Average Tax Rates (TaxVox).  This is relevant to Peter Fisher’s argument that Iowa’s highest-in-the-nation corporation taxa rate doesn’t matter because Iowa’s loopholes let so much revenue slip through.  It’s the rate on the next dollar of income that affects decisions.


Thirty-nine years ago today, Spiro Agnew resigned the vice-presidency to pursue other interests, but mostly to plead guilty to tax evasion.   The Washington Examiner reports:

He was accused of receiving kickbacks from contractors while he was governor of Maryland. He claimed the charges were “damned lies” and eventually pleaded in federal court in Baltimore to no contest to not paying taxes on $29,500.

As part of his plea deal, Agnew agreed to resign from office. He was sentenced to three years’ probation and fined $10,000. He was disbarred.

Coincidentally (I think), the debate between the two major party Vice-Presidential nominees is tonight.

In other crime news:

Judge rejects Wasendorf’s bid for jail release (  The confessed embezzler couldn’t convince the judge that a prison term that will keep him behind bars past his 100th birthday might be a reason he might flee.

It’s not just Harleys:  Sturgis surgeon convicted of income tax fraud, faces prison, reports the Mitchell Republic:

A federal jury has convicted a Rapid City surgeon on 13 felony charges related to income tax evasion. 

Edward Picardi, of Sturgis, was accused of sending millions of dollars of income out of the country and filtering the money through offshore accounts to avoid paying taxes on it. His trial lasted three weeks.

Sturgis would seem like a funny place to look for the Tax Fairy.



Regarding yesterday’s news about the West Des Moines payroll firm that apparently has not been remitting client payroll taxes timely:   Victims in Alleged $3.8 Million Payroll Fraud by West Des Moines Company Coming Forward.  West Des Moines Patch reports that the payroll firm founder:

…is the subject of a first-degree theft and fraud investigation, according to a report on file at the West Des Moines Police Department.

In that report, Des Moines contractor Priority Excavating claimed losses of $850,000 the company paid InFocus Partners’ subsidiary, ILC Staffing Inc., to administer its payroll.

Owner Tobias “Toby” Torstenson told police Detective Tom Boyd that he was contacted by the IRS and informed his company has not paid federal taxes since 2009.

Torstenson paid the money to InFocus, who was supposed to forward it to the IRS but never did, the police report said.

The IRS will still want the taxes from clients that have forwarded them to the payroll provider.  If you outsource your payroll compliance, sign up for EFTPS so you can verify  online that your payroll provider is remitting your payments.


Kay Bell,  Mortgage interest, charitable donation deductions are safe, says Romney

Dan Meyer,  Presidential Debates and Changing Accountants

TaxGrrrl,  9 Tax-Related Myths About Selling Your Home

Jack Townsend,  Render Unto Caesar — Another Intersection of Alleged Religion and Tax

Margaret Van Houten, ACTEC Wealth Advisor: A New App For Your iPad (Davis Brown Tax Law Blog)

Jason Dinesen,  Would a Name Change Help Enrolled Agents? Part 2

Robert D. Flach comes through with his Wednesday Buzz.

The Critical Question:  Will Farmers Have More “Repairs” This Year? (Paul Neiffer)

News you can use:  The IRS Is Not Obligated to Pursue Your Whistleblower Claim  (Anthony Nitti)




Tax Roundup, 9/27/2012: Misdirected charity edition. Also: No, Iowa, you don’t have a good tax climate.

Thursday, September 27th, 2012 by Joe Kristan

Peter Fisher

Is the Iowa tax system better for business than its 41st place ranking in the Tax Foundation’s 2012 Business Tax Climate Index would indicate?  Iowa City’s Peter Fisher says so in the Des Moines Register: Iowa View: Why ignore Iowa’s pro-business tax climate?

Complaints about Iowa’s business tax system are puzzling, because businesses get a really good deal here.

First, as the Iowa Fiscal Partnership has shown, Iowa’s overall state and local taxes on business are lower than average. Only nine states take a smaller share of private-sector output in corporate income taxes.

So Iowa’s tax system is good because it’s ineffective.  Noted.  Later Mr. Fisher unwittingly gets to the real problem with Iowa corporate taxes.

We go through this every few years. Business lobbyists complain about Iowa’s corporate tax rates, but ignore the way they are applied. Iowa’s effective tax rate on businesses makes our state highly competitive with our neighbors. It’s Iowa’s great secret.

The problem with Iowa corporate taxes is that there are so many loopholes and special deals made for select companies. Many companies get away with paying no income tax and instead demand subsidy checks for many thousands and even millions of dollars.

With the highest corporation income tax rate in the nation — even after the 50% deduction for federal taxes that he points out — some businesses really get clobbered — particularly Iowa corporations selling primarily to Iowa customers.  The clobbered ones subsidize the ones that “get away with paying no income tax and instead demand subsidy checks for many thousands and even millions of dollars.”  That’s why the net corporate tax is a so small — the state only gets what’s left after it takes cash from the average taxpayer and transfers it to the well-connected ones with the “loopholes and special deals.”  It’s a textbook model of crony capitalism.

Mr. Fisher’s solution is not to alleviate the suffering, but to spread it around.  There is a better way.


When your employer doesn’t offer a “matching gifts” program, you aren’t allowed to start one by yourself. reports on a man sentenced to five years in prison after stealing from his employer — and not putting the proceeds on his 1040:

U.S. District Judge Richard Young also ordered 54-year-old Richard E. Brown of Mount Vernon to pay a fine of $30,000 and nearly $190,000 in restitution and to serve three years supervised released after his prison term.

Prosecutors say Brown used his position as the office manager of Walker Investments in Evansville to pay his personal expenses with a company credit card and company checks to pay expenses of his church, Oak Hill Christian center in Evansville, where Brown was the bookkeeper.

He needs to re-read that “give unto Caesar” thing.


It’s better to give than to receive, but receiving can be lucrative.  From

The founder of USA Harvest was charged Wednesday with failing to pay taxes on $553,891.67 from 2005 through 2008 — including funds prosecutors say he stole from the charity and personal expenses he billed to the organization.             

In a bill of information, 63-year-old Hugh “Stan” Curtis of Louisville is charged with taking $183,354 in donations from the charity and charging $370,537.67 in personal travel expenses. He faces charges of mail fraud, money laundering and filing false income tax returns.

The story says that the organization takes extra foods from restaurants and other food service providers and delivers it to the hungry.

The group’s efforts have drawn assistance from the Goo Goo Dolls, who used to pick up food in their concerts in benefit of the organization and actress Scarlett Johansson, whose photo is featured on the organization’s web site.

Yes, this picture.



Per Diem rates updated.  The IRS has updated the “Special Per Diem Rates” for away-from-home expenses for taxpayers in the transportation industry (Notice 2012-63).  Taxpayers can use these rates in lieu of substantiating actual away from home business meal and lodging costs.The notice also provides the new incidentals-only amount ($5 per day) and the rates for “high-cost localities” for taxpayers in all industries.  The Journal of Accountancy has more.  The GSA web site has the rates nationwide.


Joseph Henchman,   Taxpayer Wins Against Washington State Shakedown; State Appeals (Tax Policy Blog)

TaxGrrrl, More Bogus IRS Emails Hit Inboxes

Courtey A. Strutt Todd,  How will the Expiration of the Bush Tax Cuts Affect Me? (Davis Brown Tax Law Blog)

Leaving Louisiana.  A New Orleans preparer gets a 92-month sentence for filing 635 returns claiming inflated deductions and credits (

Tax Trials,  Tax Court: Gross Receipts Must Include Interest & Investment Income for Research Tax Credit Calculation

Trish McIntire,   Out of Pocket Charity Deduction

Brian Strahle,  Kentucky Tax Amnesty Program begins October 1, 2012!

Jason Dinesen,  IRS E-Services and the TIGTA Report

Daniel Shaviro,  More honest than usual, but still not making sense

Kay Bell,  ‘Obama didn’t raise taxes’ and other Romney comments freaking out the GOP

Anthony Nitti,  Coloradans May Soon Be Able to Get High Without Having To First Pretend They Have Cataracts


The Critical Question: Do Swinging Singles Have Any Chance At Making Partner in Public Accounting? (Going Concern).



Yes, state taxes do matter

Thursday, February 10th, 2011 by Joe Kristan

The Iowa Fiscal Partnership, the big-government think tank joint venture of David Osterberg’s Iowa Policy Project and the Child and Family Policy Family Center, has a new Peter Fisher report saying Iowa’s business taxes are just hunky-dory.
It concludes:

Business tax breaks are an expensive and inefficient way to attempt to stimulate a state economy. Because of the small effect of tax breaks on business costs, and the much larger importance of other production costs and location considerations, tax breaks will have little if any positive effect on private sector employment.

I would agree with that conclusion if “business tax breaks” meant special interest “incentives” like the Iowa Film Credit program or the “green jobs” tax rebates proposed yesterday by Democrats in the Iowa legislature. Where the Fisher report goes off the rails is the way it treats reductions in Iowa’s highest-in-the-nation corporation tax rate as just another “tax break.”
Details matter, and marginal rates matter more than most. Marginal rates are the ones that affect the start-up, the new business that is getting off the ground and can’t afford expensive tax help or fancy lobbyists to qualify it for tax credit pork. It’s not coincidental that Iowa has a poor record at creating and sustaining start-ups. Growing economies grow from the ground, not by stealing businesses from neighboring states. With a 12% rate kicking in at only $250,000 of taxable income — and 8% at only $25,000 — Iowa is not a good place for a struggling corporation.
If rates don’t matter, why doesn’t Peter Fisher just propose a 100% rate? They obviously do matter, and the only question is how much. If they matter at all, it’s not good to have the highest one.
Yes, get rid of “tax breaks” directed at politically-favored industries and companies. But use the savings to lower the tax rates for everyone. Let the little guy benefit from a simple and inexpensive to comply with tax system. Stop taxing businesses that are already here to lure and subsidize their competitors. Impossible? I say not. Keep reading to see how we can have both low rates and a simple system that doesn’t favor the powerful and well-connected.
Other coverage: Think tank report says Iowa businesses taxed lightly



Iowa’s corporate tax: deadly when it works

Friday, May 14th, 2010 by Joe Kristan

Iowa’s corporation tax is a weird system of crushingly-high rates honeycombed with loopholes and giveaways that make it a joke. In a Des Moines Register op-ed this week, Peter Fisher says it’s time to get rid of the loopholes and giveaways and just leave the crushing high rates:

The problem is not what corporations are paying. It’s what they are not paying. When corporations don’t pay their fair share of taxes that support their operations, other taxpayers must pick up the tab. That’s already happening – disadvantaging small Iowa businesses and individual households. Our challenge is to restore corporate taxes to their rightful place in the mix of funding for public services.

Actually, the only reason that Iowa’s highest-in-the-nation corporation tax rate hasn’t destroyed the state’s economy is that there are enough loopholes to make it a joke, except for the few corporations who by chance or by lack of good lobbyists actually stumble into the top rate.
While mistaken about the feasibility of an effective 12% Iowa corporation tax, Mr. Fisher makes a bigger error: he seems to think “corporations” pay taxes. In economic terms, corporations are just instruments of their owners for the conduct of business. Any tax on the business activity can only be borne by either owners, customers, or workers.
What if it’s the owners? That means the tax is largely borne by 401(k) plans and IRAs — by your retirement, in other words. Or it’s borne by the mutual funds that you use to save for your future, or for college.
To the extent the tax falls on customers, it falls on Iowans. The Iowa corporation tax is determined based on sales within Iowa — and on Iowa purchasers.
Much of the burden of the tax likely falls on corporation employees. As a 2009 report for the Federal Reserve Bank of Kansas City put it:
The incidence of a tax does not always fall on those responsible for remitting the tax. In the case of the state corporate income tax, labor bears a significant burden from the tax in the form of lower wages.

Peter Fisher has done good work pointing out the folly of Iowa’s tax credit giveaway system. Sadly, he doesn’t realize that Iowa’s corporation tax is so severe that it would be intolerable if it wasn’t so loophole-ridden. The answer is to combine Mr. Fisher’s proposals to get rid of corporate welfare tax breaks with the elimination of the corporation income tax — in other words, the Quick and Dirty Iowa Tax Reform.
Mr. Fisher also spreads a misconception about how the current system deals with large vs. small businesses:
What corporate tax opponents never tell you is that their position is decidedly anti-Main Street, and that Iowa’s tax laws already favor large multi-state corporations.
About 460,000 Iowa businesses file tax returns in a given year. Over 90 percent are farms, mom-and-pop stores and other proprietorships, partnerships and what are known as “S corporations.” These overwhelmingly smaller, Iowa based businesses all pay income taxes under the individual income tax; only so-called “C corporations” pay corporate income tax.

Actually, Iowa’s corporate tax system, which taxes corporations based solely on Iowa destination sales, is designed to screw out-of-state corporations in favor of Iowa-based businesses.
Here’s how the Quick and Dirty Tax Reform brings parity to C and S corporations after repealing the Iowa corporation income tax:
I would allow S corporations to elect to be Iowa C corporations and make Iowans taxable on distributions from the corporation as if they were C corporations. Electing corporations would have to report distributions to Iowa shareholders to the state, and the shareholders would be taxed as if the distributions were taxable dividends; otherwise electing corporations would pay no tax on Iowa-source income. Iowans owning Non-electing S corporations would be taxed in Iowa on all their S corporation income.

So far nobody running for governor has been bold enough to propose this. It’s a pity. The current system gives Iowa the fifth-worst business tax environment, and a terrible record for business development. A repeal of the corporation tax combined with a loophole purge would be a huge improvement.
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