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Policy Points from Iowa Fiscal Partners

Posts tagged tax cuts

Spin and ideology are no substitute for good policy

Posted December 15th, 2016 to Blog

Basic RGBBrace yourselves for public policy backed by nothing but spin and ideology in Iowa. A good example: tax policy.

Senator Bill Dix, who will be the new majority leader in the Iowa Senate with a comfortable nine or potentially 10-vote edge, offers a strident approach for the coming legislative session in this story by veteran Statehouse reporter Rod Boshart:

“The states that are growing the fastest today are the ones that have recognized that economic policy and tax policy makes a big difference,” he said. “High income tax punishes people who want to work, save and make investments in our state. We need to recognize that. States that have grown the fastest the last couple of decades across our country today are the ones that have either lowered their rates, broadened their base and kept things simple or moved to no income tax at all.”

The tax cutters have a big microphone now but amplified volume does not substitute for good content. Research is clear. So are the facts, and Senator Dix is missing them.

On IPP’s GradingStates.org website, Peter Fisher sorts out the fact from fiction with so-called “business climate” rankings that are certifiably unreliable. But they get a lot of attention from legislators who want something to back their ideological approach to policy.

Senator Dix is one of three Iowa state chairs for the American Legislative Exchange Council, or ALEC, which peddles much of the nonsense about tax cuts promoting economic growth.

Notes Fisher about the ALEC analysis, “when we can compare states ranked the best by ALEC with states ranked the worst, it turns out that ALEC’s 20 ‘best’ states have lower per capita income, lower median family income, and a lower median annual wage than the 20 ‘worst’ states. ALEC’s ‘best’ states also have higher poverty rates: 15.4 percent on average from 2007 through 2014, vs. 13.8 percent in the ‘worst’ states. The states favored by ALEC include the likes of Utah, North Dakota, and North Carolina, whereas ALEC’s ‘worst’ states include New York, California, and Vermont.”

Even if the prescriptions for lower taxes, etc. were right, they would not apply in Iowa. Our state has repeatedly been shown to be average or below average by any measure on taxes paid. In fact, few states can get below Iowa on corporate taxes, something the business lobby will not admit. So we start the legislative session with competitiveness not an issue for Iowa except in the minds of well-placed lobbyists and certain legislators.

And another angle not on their agenda: accountability on the large number of tax breaks already in Iowa law — something the Cedar Rapids Gazette noted today in an excellent editorial:

Over the years, lawmakers from both parties have given away tax exemptions, deductions and credits to an array of special interests lobbying for a break. Individually, the cuts look small. Added together, they have a significant budgetary impact.

They’re sold as an economic boost, but there’s rarely any follow up to find out if the tax cuts actually delivered on those promises.

And the real path to growth — the path lined with investments in human capital and public infrastructure? We’ll see how many of those demonstrated, positive approaches to prosperity even get a hearing in 2017.

owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project

Contact: mikeowen@iowapolicyproject.org


Keeping Ahead of the Kansans

Posted April 9th, 2015 to Blog

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than Kansas’ 3.5 percent from the implementation of its tax cuts.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states.

Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes.

2010-PFw5464Posted by Peter Fisher, Research Director, Iowa Policy Project

See Fisher’s Iowa Fiscal Partnership Policy Snapshot on this issue.

 


Keeping Ahead of the Kansans

Posted April 9th, 2015 to Blog

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than Kansas’ 3.5 percent from the implementation of its tax cuts.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states.

Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes.

2010-PFw5464Posted by Peter Fisher, Research Director, Iowa Policy Project

See Fisher’s Iowa Fiscal Partnership Policy Snapshot on this issue.

 

Basic RGB


Remaking ‘Blazing Saddles’

Posted December 13th, 2012 to Blog
Peter Fisher

Peter Fisher

Some of the arguments against raising tax rates on the richest 2 percent of Americans back to the level that prevailed during the boom years of the 1990s bring to mind Mel Brooks’ classic, Blazing Saddles. In the film, new Sheriff Bart is surrounded by an angry mob. He draws his gun, points it at his own head and warns he’ll shoot if someone makes a move. The mob freezes and Bart escapes to safety.

In the current remake of the film, Bart is being played by the wealthy businessmen claiming they will have to lay off workers if we raise the tax rate on their profits by 3.6 percentage points.

We can reasonably assume those workers are currently productive, earning enough for the owner to cover their wages and add something to the bottom line. If not, they would have been laid off long ago. So these owners would have us believe that an increase in the tax on profits would lead them to lay off these productive workers. That, in turn, would mean the business is producing less, earning less profit before taxes.

So the owners are actually saying, “If you raise my taxes, I will show you a thing or two — I’ll deliberately sabotage my business so you have less profit to tax.”

A business owner whose objective is to maximize after-tax profits will always be better off producing more, with more workers, and earning more before-tax profit, no matter what percent of those profits end up going to pay income taxes. On the other hand, making a political point may be so important to these owners that they are willing to shoot themselves in the foot, if not the head, to do it. If they are rich enough to afford that symbolic gesture, I guess we can’t stop them.

Fortunately, in the remake of Blazing Saddles, it appears that the angry mob is ready to call their bluff. They recognize that the “job-killing tax increase” is no such thing. It is simply an effort to reclaim for the average American a share of the increased wealth generated by workers in this economy in recent years that has been captured almost entirely by the richest among us.

Posted by Peter Fisher, Research Director