Iowa’s already competitive tax system

Lawmakers often hear — and voice — complaints about the competitiveness of Iowa’s tax system. In fact, Iowa’s taxes on business already are very competitive.

“Pay no attention to that man behind the curtain!”

So said the Wizard of Oz, to distract his visitors from how he was manipulating them.

Well, thank goodness for Toto’s work in exposing the fraud.

Likewise, IPP’s Peter Fisher and others doing real research have exposed the myths about corporate taxes in Iowa that justify every political claim of a supposed need to reduce taxes on business. The fact is, it’s simply not a problem, as noted in the Iowa Fiscal Partnership backgrounder, “Iowa’s Businesses Already Are Taxed Lightly.”

Few States Tax Businesses Less Than Iowa

State Corporate Income Tax: Percent of Private-Sector GDP — Comparison to U.S. Average

Few States Tax Businesses Less Than Iowa — State Corporate Income Tax: Percent of Private-Sector GDP

Sources: IPP analysis of data from the U.S. Census, State Government Tax Collections; and the Bureau of Economic Analysis, Gross Domestic Product by State

Lawmakers often hear — and voice — complaints about the competitiveness of Iowa’s tax system. In fact, Iowa’s taxes on business already are very competitive. Whether one focuses only on the corporate income tax (above and linked here), or the whole range of taxes falling on business, Iowa’s state and local taxes are well below average, and have been for some time. (See state and local ranking of all states)

Iowa’s corporate income tax in recent years has been considerably lower than the national average level of taxation and lower than all but 11 states. The best summary measure of the level of corporate income taxation from one state to another, that takes into account all features of the tax code, is the amount of tax collected as a percent of the private economic activity generated in the state, as measured by state private sector GDP (gross domestic product).

In Iowa, this fraction fell from 0.31 percent in the mid-1990s to 0.24 percent over the last five fiscal years, as shown in the graph above. On this measure, Iowa’s rank among the 50 states fell from 36th to 40th. (For the most recent year, 2009, Iowa ranked 36th.) In both periods, Iowa taxed well below the average for all 50 states. Similarly, the conservative Tax Foundation found that Iowa ranks 43rd among the states in its level of corporate income taxation, measured as corporate taxes paid per capita on average for fiscal years 2004-2008 (and 36th for 2008).

See our two-page backgrounder on this issue at www.IowaFiscal.org.

Posted by Mike Owen, Assistant Director

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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