In today’s fractured political climate, the charges are typical: the left says “Republicans care only about tax cuts for the wealthy” and the right calls Democrats “tax and spend liberals.”
Lawmakers in Iowa could shatter these stereotypes by coming together to fix our broken tax code, making it fairer and more conducive to economic growth.
Wouldn’t that be refreshing?
There’s no question that we need reform. Iowa’s current tax code is a complex mess of uncompetitive tax rates with myriad tax credits that favor select, well-connected businesses and industries over smaller companies.
The nonpartisan Tax Foundation ranks our individual income tax 33rd in the nation. At almost 9 percent, our top income tax rate is higher than that of New York and Washington, D.C. — not known for their sensible taxes. Our corporate tax rating is worse, closing in on last place at 47th in the nation.
With some of the highest marginal tax rates in the country, our system stifles economic growth and makes Iowa less competitive by unnecessarily burdening hardworking taxpayers and the small businesses that create jobs in our communities. Earlier this year, the American Legislative Exchange Council ranked Iowa’s economic outlook in the bottom half of all 50 states.
Then there are complicated and often unfair tax credits and special interest handouts that have exploded in the past decade. In 2005, state tax credits totaled $153 million; by 2018, they’re estimated to be $427 million — that’s a nearly 180 percent increase.
Not only do these corporate welfare carveouts rig the system in favor of well-connected businesses and industries at the expense of the little guy, they also make it difficult for the Department of Management to produce accurate revenue estimates. As a result, lawmakers raid our emergency accounts for stopgap funding and force state agencies and projects to endure painful midyear budget cuts.
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Ending corporate welfare in our tax code will require lawmakers on both sides of the aisle to muster the political courage to say “no” to the state’s well-connected industries. But this is what hardworking Iowans deserve.
Comprehensive tax reform should create a more equitable, predictable tax base while reducing rates across the board to lessen our tax burden and spur economic growth throughout the state. This approach won’t generate big revenue growth over night and it isn’t as sexy as handing out economic development grants—but it does work.
It’s the course North Carolina took over the past few years, and that state has moved from 44th to 11th in the Tax Foundation’s state tax rankings. Lawmakers there simplified their tax code, cut income taxes and lowered the corporate tax rate. They also reduced corporate welfare and adopted responsible spending habits.
The Tar Heel state now is the most competitive state in the country and boasts a growing economy with multiple years of budget surpluses. Fixing our broken tax code and controlling spending in the same way will stabilize state revenue and boost our economy for the long-term.
Iowa’s legislators must come together, put people over politics, and unleash our state’s potential by simplifying our tax code and making it fairer for all Iowa taxpayers and businesses.
• Drew Klein is the Iowa director for Americans for Prosperity