Dropping income tax would fix budget woes

By Ed Failor Jr.

With the news that state coffers are $415 million short for 2010 and $1 billion short for 2011, it is time real solutions are offered to lift our state out of the deep financial downturn.

Gov. Culver is offering quick-fix solutions such as cutting all state agencies across the board, by the same percentage, because it “avoids the unfair and unrealistic ‘picking and choosing' of important programs” as he stated in Executive Order 19. The job of an executive is to make the tough decisions.

Today, our elected decision-makers have the opportunity to be bold: transform the way our state government does business. I challenge our state lawmakers to look at the budget shortfall as a chance to make Iowa an even better state. I have a couple of ideas.

First, do away with the Iowa Department of Economic Development and any other useless programs. While this department has been wrought with scandal, I do not propose the elimination solely for that reason.

Really, economic development is a basic duty of our governor and the Legislature. Even though the DED's budget of $18.5 million is a small part of the state budget, toss in annual taxpayer-funded giveaway programs such as the Iowa Values Fund budget of $45 million and the Iowa Power Fund budget of $24 million, and the budget picture changes dramatically.

Second, we can make more progress on economic development by lowering, then eventually eliminating, both the Iowa corporate and personal income tax.

Empirical evidence shows this works. For instance, from 1967 to 2007, South Dakota, a state with no corporate or personal income tax, has experienced greater growth than Iowa in the following areas: total personal income, per capita personal income, population and non-farm employment.

Also, the 2007 “Rich States, Poor States ALEC-Laffer State Economic Competitiveness Index” compared the nine states with no income tax to the nine states with the highest income tax over 10 years (1996-2006). Among the findings: population growth was twice as great in states without an income tax than in the high-income-tax states.

The same study found those states with no income tax saw a 23 percent increase in jobs compared to only 12 percent in the highest income tax states.

To correct budgetary mistakes of the past few years, legislators need to accelerate job creation and economic growth by phasing out income taxes, instead of spending more and more of Iowans' hard-earned money.

The current budget crisis confirms the spending trend is simply unsustainable.

Ed Failor Jr. is president of Muscatine-based Iowans for Tax Relief.