Another view on corporate income tax cuts

I wrote yesterday about Gov. Terry Branstad's call for corporate income taxes, and how I'd be OK with a deal that cuts rates but also eliminates credits/loopholes.

Mike Owen, executive director of the Iowa Policy Project (congrats on the recent promotion) took some issue with my conclusions in an email:

In this piece you state that "The House has passed all sorts of tax cuts in the last three years, but, to my knowledge, not a corporate income tax cut. If one slipped through that I missed, please let me know."

If you're talking about a cut in corporate income-tax rates, you are correct. However, it is hard to accept that increases in tax credits are not in fact a "corporate income tax cut." And we know there have been several, not the least of which was the $50 million increase in the cap on corporate income-tax credits passed this year.

I also would contest this comment in your post:

 To take Iowa's corporate tax rate in a vacuum, as many politicians often do, is the hyperbole we should be most concerned about. It has severely misinformed the discussion in Iowa about tax policy. And the Tax Foundation, to which you linked in the piece, is one of those that has pretty routinely contributed to this misinformation.

As Peter Fisher and Heather Milway noted in our IFP paper about the House and Senate property-tax bills this past spring, both plans "play to a myth about Iowa taxes on business, which in reality are below business taxes in most states when considered comprehensively, and which already include substantial loopholes and preferences that disproportionately benefit select industries."

 Iowa businesses, like individuals, benefit from federal deductibility. When you add in all the other perks they have in the tax code, their effective tax rate is not only competitive in Iowa, but below average. Iowa's economic development types should be promoting that instead of complaining about tax rates. They're already low. And what's more, it makes the most sense to believe that corporate execs and their accountants understand these points.

Peter outlines the arguments well in the attached document, "Corporate Taxes and State Economic Growth."

 Finally, Iowa's single-factor tax formula, where no one is arguing for change, provides a huge benefit to business. It is one of the greatest reasons we need to get serious, some year, about closing corporate tax loopholes with combined reporting. http://www.iowafiscal.org/single-factor-to-consider/

Clearly, any "reform" of corporate income taxes should start with making for a more accountable system that, as you say, should not blow a huge hole in the budget. Dare I suggest - one that actually raises revenue, in a better system than we have now.

Points well taken. I'd, basically, be willing to shave corporate income tax rates in exchange for tossing some of the credits that make the tax structure complex and murky. I think there's an outside chance such a deal would be politically doable. Maybe not in an election year, when I imagine the governor and Republicans will be eager to cut personal income taxes, but maybe someday.

It's got to be a balanced approach, weighing the potential positive impact of tax relief for businesses against the need for revenue to pay for the government services that businesses also appreciate and need. I think the more you tip a reform plan one way or the other, the less politically possible it gets.