Tax Reform in Iowa

Iowa has an eclectic mix of industries coupled with a diverse workforce. In the 21st Century, it is imperative that our cities, counties, and state have tax policies which make people want to come to our state to live, start businesses, and retire.

Our state has unnecessarily high tax rates; both for individuals and businesses of all sizes. Our individual and corporate taxes rates are the 8th and highest in the nation, respectively.

Too often, tax policy is dictated by political favoritism and special interests and the result is a complex tax code that stacks the deck against hardworking business owners and Iowans who play by the rules.

Our tax system is supported by three types of taxes:

  • Taxes on Wealth - Property Taxes

  • Taxes on Wages - Income Taxes

  • Taxes on Consumption - Sales Taxes

With the value of corporate tax credits spiraling out of control and an anti-competitive tax code for families and businesses, Iowa is not serving itself, or our communities in the best way possible. Tax reform should aim to make taxes simpler, make our state more competitive, and be fair for all businesses and individuals. A well-structured tax code with a broader base - eliminating many of the incentives with a lower rate would do far more to encourage job creation and economic growth than blanket cuts.(1)

Our tax reform proposal reforms all three types of taxes to ensure Iowa is positioned not only for today’s needs but tomorrow's growth.

Personal Income Tax Reform

  • Eliminate federal income tax deductibility to provide more stability to Iowa’s budget.(2)

  • Reduce all rates by 20%, making the top rate 7.18%.

    • Together these are Revenue Neutral*(3)

Corporate Taxes

  • Modernize bank franchise fees to tax all deposits fairly which would raise general fund revenue by $20 million.(4)

  • Eliminate federal deductibility and set 9% flat tax

    • This is Revenue Neutral*

  • Reform Iowa’s Tax Credit System

    • Reduce total tax credit threshold by 20% for a total cap of $220 million, a cost savings of $65 million. Allow the cap to raise by the total rate of inflation of the previous year, minus 1%.

    • Impose a five-year sunset on all tax credits.

  • Eliminate the Corporate Alternative Minimum Tax (paid by only 288 businesses in 2013), which would reduce state general fund revenue by $5.8 million.(5) 

 

State Sales & Local Taxes

  • Broaden the sales tax base by taxing more services due to our economy shifting from a goods-first economy to a services-first economy.^(6)

  • Tax all eCommerce sales of goods (Increase sales tax revenue by $17 million).(7,8)

  • Update the gas tax and tie it to inflation, thus guaranteeing we maintain adequate funding for our vital transportation infrastructure

Property Taxes

  • Reduce the Racetrack exemption by 50%, raising property tax revenue by $8.95 million(9)

  • Cap the Business Property Tax Credit at $100 million, saving the state $25 million each year(10)

  • Create a Blue-Ribbon Commission to investigate the real effects of the 2013 Property Tax Reform and make recommendations to the Governor and Legislature on ways to simplify and modernize our property tax structure.

Tax Increment Financing Reform

  • Reform Tax Increment Financing laws to limit their use to strictly defined blighted properties. The current TIFs throughout Iowa divert about $300 million a year in local tax revenue.(11)


 

* These are simply estimates based on currently available information.

^ Examples of non-taxed services include long-term auto rentals, cold storage, accounting & bookkeeping, funeral services, and fishing & hunting guide services.

Sources: 

  1. Mazerov, Michael. “State Taxes and State Economic Performance.” Center on Budget and Priorities, January 14, 2017.

  2. “Impact of Federal Income Tax Changes on Iowa General Fund Revenue” Issue Review, December 13, 2012. LSA

  3. Walczak, Jared, et al. Iowa Tax Reform Options. Tax Foundation, 2016. Table 2h

  4. Lipsman, Mike. “Seven ways to solve Iowa's tax problem.” Des Moines Register, Des Moines Register, 1 June 2017, www.desmoinesregister.com/story/opinion/columnists/iowa-view/2017/06/02/seven-ways-solve-iowas-tax-problem/361740001/. Accessed 24 Sept. 2017.

  5. Walczak, Jared, et al. Iowa Tax Reform Options. Tax Foundation, 2016. Page 60.

  6. Leachman, Michael. Four Ways to Modernize State Sales Taxes. Center on Budget and Policy Priorities, https://www.cbpp.org/blog/four-ways-to-modernize-state-sales-taxes. Accessed 31 October 2017.

  7. Walczak, Jared, et al. Iowa Tax Reform Options. Tax Foundation, 2016. Page 84.

  8. Lipsman, Mike. “Seven ways to solve Iowa's tax problem.” Des Moines Register, Des Moines Register, 1 June 2017, www.desmoinesregister.com/story/opinion/columnists/iowa-view/2017/06/02/seven-ways-solve-iowas-tax-problem/361740001/. Accessed 24 Sept. 2017.

  9. Walczak, Jared, et al. Iowa Tax Reform Options. Tax Foundation, 2016. Page 104.

  10. Walczak, Jared, et al. Iowa Tax Reform Options. Tax Foundation, 2016. Page 103.

  11. Girardi, Anthony. “Iowa Tax Increment Financing.” Page 37.

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