Tax Justice Digest stories about Iowa
Iowa
Governor Chet Culver's Condition of the State address was a shot in the arm to advocates for fair business taxation. In his speech the Governor unveiled his plan for combined reporting of corporate income for tax purposes. He said, "It's just not fair that big, out of state, multi-billion dollar corporations that do tens of millions of dollars of business in Iowa avoid paying Iowa income taxes because of an outdated tax loophole." Read the Iowa Fiscal Partnership's release on the importance of closing this costly loophole. Another proposal included in Culver's speech was a 2-cent tax on the purchase of bottles and cans. Part of this increased revenue would go towards enhancing environmental programs.
This November Maine voters will have the opportunity (unless the Legislature acts first) to vote on a proposal that would provide tax cuts to assist college graduates as they pay back their student loans. If the initiative is approved, college students in Maine who stay and work in the state after graduation may claim a tax credit of about $2,100. Advocates of the proposal say that offering the tax credit will make education more affordable for students and also "raise the wage and skill levels of Maine's workforce." However, some important questions remain regarding how much the tax credits will cost, where the money to pay for the credits would come from, and whether or not offering a tax credit will really ensure that students stay in Maine.
In Iowa a similar proposal is focused on keeping college graduates in the state and slowing the state's "brain drain." The proposal allows businesses who repay new employees' student loan debt (up to $25,000) to receive tax credits of up to $7,500. In order to qualify for the credit, employers have to pay a minimum salary of $25,000 and start repaying the employee's loan within six months. The Des Moines Register's editorial board sharply critiques this proposal and raises good points about whether or not providing tax credits to businesses really is the best strategy for ensuring that college graduates stay or move into the state. Instead, the Register rightly suggests, "To reduce student loan debt, public money would be better used to hold down tuition costs at state universities, so students don't graduate with huge debt in the first place."
Wednesday, Iowa Governor Chet Culver signed into law a bill that raises cigarette taxes by $1 a pack and also increases taxes on various other tobacco products. The Governor predicts that the new $1.36 tax will cause 20,000 Iowans to quit smoking and prevent twice as many from ever picking up the habit. The tax increase goes into effect immediately and revenues generated are expected to be used for healthcare. Unfortunately, evidence from other states shows that revenues generated from this regressive tax will decline over time.
In Mississippi, a proposal to swap a cigarette tax hike for a sales tax cut appears to be dead for the second time. While promising to propose a "serious tax cut" in the future, Governor Haley Barbour refused to support a bill that would increase the state's cigarette tax from 18 cents to $1 and cut the tax on groceries by half. The problems with Mississippi's tax code go beyond sales and excise taxes, so perhaps now is the time for discussing a complete overhaul of Mississippi's tax structure.
As expected, Massachusetts Governor Deval Patrick this week joined the ranks of chief executives calling for the use of combined reporting of state corporate income taxes to combat tax avoidance by large and profitable companies. Like the Governors of New York, Pennsylvania, and Iowa, Governor Patrick, in his FY2008 budget plan, recommended adopting this approach to corporate taxation, which would require corporations operating in multiple states to report all of their income — including that attributable to subsidiaries. This would negate any tax benefit derived from accounting schemes designed to shift profits out-of-state. A fact sheet from the Massachusetts Budget and Policy Center explains how combined reporting works and why it's needed in the Bay State. While Martin O'Malley has not yet added his name to this growing gubernatorial roster, Maryland legislators this week considered a bill to institute combined reporting in their state. ITEP Executive Director Matt Gardner was among those who testified on the measure.
In a welcome trend, lawmakers and advocates in Connecticut, New Jersey, North Carolina, Nebraska, New Mexico, Montana, Hawaii, Utah, Ohio, and Iowa are considering enacting Earned Income Tax Credits — or expanding existing EITCs. The federal EITC has been hailed by policymakers of all stripes as an especially effective tool for lifting working families out of poverty. At the state level, the EITC offers the additional benefit of helping to offset the regressive sales and property taxes that hit low-income families hardest. To find out more about whether EITC legislation is active in your state, check out the Hatcher Group's State EITC Online Resource Center.
State corporate income tax reform is gathering momentum in 2007, as more and more states are considering adopting an important corporate tax reform: combined reporting. Governors in New York, Iowa and Pennsylvania have already proposed this important loophole-closing reform, and newly elected Massachusetts Governor Deval Patrick is sending signals that he may follow in their footsteps. Meanwhile, a new paper by the Center on Budget and Policy Priorities' Michael Mazerov gives the lowdown on an equally important corporate tax reform that could productively be adopted by every state with a corporate tax: company-specific disclosure of taxes paid (or not paid). Mazerov's paper includes model legislation for use in any state seeking to shed more light on corporate tax avoidance.
Over the past few years, a number of states have taken incremental steps to reform their corporate income taxes to curtail tax avoidance by large and profitable companies. One such reform, combined reporting, prevents corporations from using a range of accounting schemes to shift profits from one state to another in order to artificially reduce the taxes they owe. The seventeen states that now use combined reporting may eventually get some company, as two Governors - Eliot Spitzer (D-NY) and Chet Culver (D-IA) - have included provisions in their budget proposals for the coming fiscal year to institute combined reporting. To learn more about combined reporting and how it works, see the Institute on Taxation and Economic Policy's updated policy brief.
Several tax avoidance techniques are available to corporations operating in states that don't have combined reporting. For example, a recent Wall Street Journal article (subscription required) notes that Wal-Mart may have been able to avoid as much as $350 million in state corporate income taxes between 1998 and 2001 due to a loophole that could be countered with combined reporting.
