Today is probably the last post until June 24 as I take a summer hiatus. It is also the last day of our Traverse City, Michigan seminar. It’s been a great time, and Traverse City is a beautiful resort town.
Co-panelist Paul Neiffer covers Day 1 at Traverse City
Will 2014 be the Iowa’s Income Tax Reform Year? Now that he has signed the property tax reform bill, Governor Branstad signals a shift to income tax reform. Radio Iowa reports:
“I think it’s very likely we’ll be looking at reducing the income tax further,” Branstad says. “When I became governor, the income tax rate in Iowa was 13 percent. We now have it down to 8.98 percent, plus we have full federal deductability…Remember, the top federal tax is 38.5 percent, so the effective rate in Iowa is only about 5.5 percent. We’d like to see that go lower.”
The top federal rate is actually 39.6%, not including deduction phase-outs, or 43.4% considering the Obamacare Net Investment Income Tax. That leads to an effective top Iowa rate of somewhere between 5.2% and 5.6%.
The way to income tax reform would be to repeal Iowa’s corporate income tax, its rat’s nest of corporate welfare deductions, and its mess of well-intended but ineffective social welfare tax incentives. You could get a 0% corporate rate and a 4% individual rate, and an Iowa 1040 that fits on a postcard. You could get the Quick and Dirty Iowa Tax Reform Plan, in other words.
That would require the Governor to swear off the corporate welfare giveaways so beloved by the Iowa “economic development” bureaucracy, and the associated fertilizer plant ribbon cuttings. Yet I think 4% individual rate and 0% corporate rate would do a lot more for Iowa’s economy than the dozens of “targeted” economic development tax credits and deductions — though not so much for Iowa’s middlemen, fixers and economic development officials.
Lyman Stone, Iowa Approves Property Tax Reductions, New Tax Credits (Tax Policy Blog):
However, the large reduction in property taxes coupled with a smaller reduction in income taxes will shift the burden of taxation more heavily onto income: a less stable and more distortionary tax. Furthermore, SF 295 creates or expands several new credits, funds, and preferential treatments in the tax code, exacerbating the problem of non-neutrality, and its distortionary effects.
In sum, the law is a mixed bag. The Governor has indicated another look will be taken at the income tax later this year: hopefully the problem of excessive and distortionary credits can be resolved then. And, if not, then Iowa may have to sit tight at 42nd on our State Business Tax Climate Index, maintaining the 4th highest top income tax in the nation, and the highest corporate tax rate.
Indeed.
Bleeding Heartland, Five perspectives on Iowa’s new property tax law
Michael Giberson looks at Iowa’s (misguided) disaster “price gouging” policies:
Portable toilet price gouging gets mentioned in several Attorney General news releases. It may be the case that the Iowa law is the only one that specifically lists “sanitation supplies” among the good covered.
The same newspaper story mentioned, “soybean price futures have jumped 25 percent and corn futures 10 percent over the past month as crop losses have spread across Illinois, Iowa and Missouri. That means farmers outside the flood zone will get far more for their crops than normal….” The state didn’t have a price gouging law until later that year. But if the price increase happened this year, would farmers in the affected counties be in violation of state law?
Higher prices are nature’s way of directing resources to their most important uses, and restricting their use when supplies are tight. Price gouging laws mess with Mother Nature.
Peter Reilly, Need Strong Documentation Of Time Spent To Claim Real Estate Losses. Peter covers the same issues we covered here, and he points out that the same issues of documenting time you spend in an activity become even more important under the Obamacare Net Investment Income Tax.
TaxProf, The IRS Scandal, Day 36
The IRS is closed today. The scoop from Kay Bell, who also reminds you Where to mail your estimated tax 1040-ES form due Monday.
Jack Townsend, Quiet Disclosures That Don’t Stay Quiet – Civil E xaminations
Jason Dinesen, Glossary: DOMA
Howard Gleckman, As Marriage Changes, Should Joint Filing Go The Way of Ozzie And Harriet?
Patrick Temple-West, REIT status questioned by IRS, and more
TaxGrrrl, Did Spanish Taxing Authorities Target Messi To Send A Message To The World? A message like “who is Messi?”
David Brunori, The Myth of State Balanced Budgets
Tony Nitti, Former PwC Partner Falls Victim To ‘Hot Asset’ Rules In Tax Court
Robert D. Flach has your Friday Buzz!
See you after vacation!
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
