What’s needed in a holistic take on tax policy

By Peter Fisher

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The Iowa Fiscal Partnership has long argued for comprehensive approaches to state tax policy. Sadly, this has rarely happened.

So, it seemed somewhat ironic that Gov. Terry Branstad recently vetoed a small increase in the Earned Income Tax Credit (EITC) for lower- and moderate-income working families on grounds that he wanted more “comprehensive and holistic” approaches to tax policy.

The governor sought targeted changes in tax policy that overall would reduce resources for critical public services, and further weight an already unbalanced scale to the benefit of the wealthiest and most politically connected taxpayers.

In fact, even Branstad's veto of the EITC came in a bill in which he expanded two other tax credits - a point he did not mention in his veto message.

A “comprehensive and holistic” approach would mean:

l Looking at Iowa's total tax structure when talking about competitiveness among states. When measuring all Iowa state and local taxes, Iowa routinely is in the middle of the pack and typically below the national average. This is rarely acknowledged when special interests push lawmakers to cut this tax or that tax.

l Sunsetting all tax credits in five years, as recommended in 2010 by the Governor's Tax Credit Review Panel. This would force the Legislature to look at each credit and vote to renew them. Many would sunset, saving taxpayers millions.

l Closing corporate tax loopholes, which are unintended tax benefits that corporations have unilaterally taken as a result of seams in the code and inattention of lawmakers. Twenty-three states, including Illinois, Wisconsin, Minnesota and Kansas, have closed loopholes with what is known as combined corporate reporting, which stops corporations from shifting profits across state lines to avoid tax.

l Improving tax fairness, of which EITC is a part. Iowa taxes low- and middle-income families for greater shares of their income than it does high-income residents.

A “comprehensive and holistic” approach would acknowledge that Iowa has done little to improve the lot of low-income families when it comes to tax policy. The EITC eases that, and can offset some other taxes those families pay (payroll, property and sales taxes). Opponents of the credit routinely distort that latter point.

Where many other credits drain the Iowa treasury with little evidence of a public benefit or return on the taxpayers' investment, the EITC stands out as a successful public policy.

Peter Fisher is research director of Iowa Policy Project in Iowa City and co-director of the Iowa Fiscal Partnership in Des Moines. Comments: ipp@Lcom.net