Iowa is out of step with the majority of states by refusing to close corporate tax loopholes. Equity demands better.
Through the years in Iowa, very few lawmakers have had the courage to take on an utter abomination in our corporate tax system: tax loopholes.
It is one thing to expressly pass a tax preference — a credit, exemption or deduction — with a specific purpose, clearly defined for all taxpayers to see and reviewed for its effectiveness. (Iowa does not provide such accountability with many such preferences, but that is for another post.)
It is quite another thing, however, to see weaknesses in your tax code exposed and exploited by large companies, and to leave those holes open for routine abuse. Welcome to Iowa.
A new report by the Center on Budget and Policy Priorities discusses this issue as part of overarching tax policy that states can use to advance racial equity and sustain services responsibly. From the report:
States can nullify a variety of tax avoidance strategies employed by large multistate corporations by adopting a reform known as “combined reporting,” which treats a parent company and its subsidiaries as one entity for state income tax purposes, thereby minimizing companies’ ability to shift income earned in a state to other states that are tax havens (like Delaware and Nevada).
The figure below shows Iowa is out of step with the majority of states on this issue. All but one of our neighboring states has a corporate income tax, and all but one of those states has combined reporting to stop companies from avoiding taxes that were originally intended by the tax code to be collected.
The Iowa Policy Project and Iowa Fiscal Partnership have been encouraging Iowans to look at this issue for many years. We made it part of our 2018 Tax Policy Kit — explaining here how Iowa could save itself tens of millions of dollars that are squandered to companies that effectively set their own tax policy. The Iowa Taxpayers Association consistently defends this break that not only burdens our state, but tilts the playing field to big, multistate corporations and against Iowa-based, Iowa-focused businesses.
Two governors, Tom Vilsack and Chet Culver, at times proposed adoption of combined reporting, but the issue — while getting some attention at the committee level — has not reached a floor vote in the House or Senate.
Iowa’s tax code needs to be fair to all residents. It needs to generate revenue to sustain services that are important to all residents, from education to water quality to law enforcement to health care. To allow corporations to set their own rules by exploiting weaknesses in the tax code defies these oft-stated Iowa values of fairness and accountability.
It’s so easy to overdo it — with pumpkin spice or with tax-cut rhetoric. Keep it simple. The tax cuts are for the wealthy, and come at great cost of services while making the tax system less fair.
You find it everywhere these days: pumpkin spice this, pumpkin spice that … tax cuts this, tax cuts that. It’s so easy to overdo it — with pumpkin spice or with tax-cut rhetoric.
Keep it simple. The tax cuts are for the wealthy, and come at great cost of services while making the tax system less fair.
Just ask the Iowa Department of Revenue, which produced the following analysis in May, just before state legislators rammed their backroom tax package for the rich through both houses of the Legislature and to the Governor’s desk. Yes, she signed it.
Put another way, almost 40 percent of resident taxpayers will get about 3 percent of the benefit of the tax cut in tax year 2021; over four-fifths of taxpayers will together see only about 26 percent of the benefit. On the other hand, the top 2.5 percent — families making over $250,000 — will receive 46 percent of the benefit.
This was a tax cut for the richest Iowans, who did not need a cut, and the bill overall will cost almost a half billion dollars in 2021.
These effects have been apparent for months, despite claims that are obvious distortions, according to the Department of Revenue analysis.
That analysis shows the average tax change in tax year 2021 for people making between $50,000 and $60,000 — this covers the latest median-income level of $58,570 — would be a $156 cut, or less than $3 a week. Don’t spend it all in one place. Meanwhile, the cut for millionaires would, on average, be $24,636.
By the way, the “fact checkers” who let loose-speaking pols off the hook for their exaggerations about tax cuts are often missing a critical point: Many Iowans, including some middle- and moderate-income working families, actually will see tax increases, or no change at all, if the new law is not changed.
Of course, most won’t see these effects right away, despite the promises. How convenient.
 Iowa Department of Revenue analysis for Legislative Services Agency, May 2, 2018
 Charles Bruner and Peter Fisher, Iowa Fiscal Partnership, “Tax plan facts vs. spin,” May 5, 2018, http://www.iowafiscal.org/tax-plan-facts-vs-spin/
See also: “A Roadmap for Opportunity: What real tax reform would look like,” Iowa Policy Project, http://www.iowapolicyproject.org/2018docs/180906-roadmap-taxes.pdf
Concerns about IPERS changes stem directly from leaders’ comments, proposed legislation and a longtime goal of ideologues on the right who have become more strident.
IPERS, the Iowa Public Employees’ Retirement System, has come under attack in recent years for no substantive reason — only ideology and politics. Understandably, IPERS members, who number well over 10 percent of the population of Iowa, are concerned.
So, some folks are engaged in what might be called “care tactics,” to make sure the stakes on that issue are well-understood. People who care want good information, and are asking for it.
These efforts and concerns are being dismissed by those who claim there is no threat to IPERS. Political scare tactics indeed are part of the 2018 campaign on several issues — primarily taxes, as illustrated by the hair-on-fire ads on television that do more to distort than inform.
But it’s hard to make that case about pension concerns, which stem directly from leaders’ comments, proposed legislation and a longtime goal of ideologues on the right who have become more strident.
Those now dismissive of pension concerns point to recent campaign-season comments by Governor Kim Reynolds. Yet not so long ago Reynolds herself raised the prospect of some change in IPERS’ actual pension structure to a “defined contribution” or 401k-style structure for new employees. Her predecessor, Terry Branstad, had made similar comments. Legislation was proposed in 2017 in the Senate. All of this remains fresh in the minds of those who are worried, as do efforts by others to undermine IPERS.
IPERS critics have promoted that riskier “defined contribution” structure, needlessly scaring Iowa taxpayers about Iowa’s secure IPERS system. The Des Moines Register has run such scare pieces, by Don Racheter of the Public Interest Institute and by Gretchen Tegeler of the Taxpayers Association of Central Iowa.
Neither the media nor IPERS critics have been able to explain how a separate system based on a 401k style structure — “defined contribution” — could be introduced for new employees without undermining existing and promised IPERS benefits for current members.
Contributions plus Interest investments equal Benefits plus Expenses in administration of the system— this is what is required for full funding of IPERS. If you reduce that first item, contributions, by setting new employees apart in a different plan, clearly that matters. It’s math.
In fact, it affects more than those new employees. Reducing contributions by diverting those from new employees reasonably means lower benefits — for current members!
The media and all policy makers should be asking more about this. It’s not enough to accept a “nothing to see here” argument from someone who in the recent past declared herself open to a change — especially when activists have pushed for it, and legislation has been proposed. The dismissal — not exposing it — is the “scare tactic.”
Let’s stay away from the “scare tactics,” and focus on the “care tactics.”
 Ed Tibbetts, Quad-City Times, “Reynolds says state looking at IPERS task force,” Jan. 26, 2017. https://qctimes.com/news/local/government-and-politics/reynolds-says-state-looking-at-ipers-task-force/article_bf76d410-c70b-5300-951c-ad1cb6bced3f.html
 William Petroski, The Des Moines Register, “IPERS cuts key target; unfunded pension liabilities up $1.3 billion,” March 24, 2017. https://www.desmoinesregister.com/story/news/politics/2017/03/24/ipers-cuts-key-target-unfunded-pension-liabilities-up-13-billion/99600866/
 O. Kay Henderson, RadioIowa, “Democrats accuse GOP of plotting that IPERS be dismantled,” December 11, 2017. https://www.radioiowa.com/2017/12/11/democrats-accuse-gop-of-plotting-that-ipers-be-dismantled/
 Don Racheter, Public Interest Intitute “Replace IPERS with defined-contribution plan,” The Des Moines Register, May 27, 2016. https://www.desmoinesregister.com/story/opinion/abetteriowa/2016/05/17/replace-ipers-defined-contribution-plan/84492576/
 Gretchen Tegeler, Taxpayers Association of Central Iowa, “Don’t minimize Iowa’s public pension debt,” The Des Moines Register, January 16,2018, https://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2018/01/16/iowas-public-pension-debt-eclipses-other-public-debt/1035979001/; also “Public retirement systems are not ideal for young, mobile employees,” The Des Moines Register, December 8, 2016, https://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2016/12/08/public-retirement-systems-not-ideal-young-mobile-employees/95148216/
We’ll throw a penalty flag when we see bad information being spread about issues we cover. Case in point: the Governor’s spin about taxes.
At the Iowa Policy Project, we are nonpartisan and we do not support or endorse candidates for office. Rather, we hope those who do, and the candidates and parties themselves, will conduct their discussions on a foundation of fact.
When they do not, we just might throw a penalty flag. Our work is public policy research and analysis, to help people see what is fact and what is not, and to introduce context where it is missing. This is not always easy with complex issues, and there are gray areas. Where bad information is being spread, that interferes with the mission of our work, so we will do what we can to keep that record straight.
Very early in Wednesday’s debate between Governor Kim Reynolds and businessman Fred Hubbell, the Governor made at least two clearly unsupportable claims about taxes. These are issues we cover constantly.
First, the 2018 tax overhaul not only was costly, but overwhelmingly benefited the wealthiest. Any suggestion to the contrary is simply unsupportable, using data provided by the Iowa Department of Revenue in May before the bill passed. Those supporting the bill knew this would be the impact, and those writing it drew it that way.
According to the department, the legislation will mean either no change, or an actual tax increase, to nearly a quarter of resident taxpayers — 23.3 percent — in tax year 2019. For those who receive cuts, the average cut for millionaires was projected to be $20,021; for someone between $60,000 and $70,000 adjusted gross income, the cut was projected to be a tiny sliver of the benefit compared to millionaires — $232.
This flatly negates the Governor’s comment that, “In 2019, virtually every single Iowan will see their taxes go down.” This is clearly inaccurate. Further, as the law is phased in, the continuing impact will be that some will lose, some will not. Unquestionably it will affect public services as hundreds of millions in revenues are cut — which means Iowans who depend upon those services, and that is most Iowans, will lose even more.
Second, the Governor in pushing for new corporate tax cuts chose to play to the myths about business taxes promoted by the business lobby to drive down Iowa’s already low business taxes.
Business consultants have exposed the hollow core of this claim, most recently the Anderson Economic Group, which in June ranked Iowa 15th lowest in state and local business taxes (all of which are governed by state policy). Iowa business taxes consistently have been shown to be competitive.
For more information about both the tax legislation and Iowa taxes on business see these resources:
What real Iowa tax reform would look like, Iowa Policy Project “Roadmap for Opportunity” series, August 2018.
Iowa tax overhaul: Sorting facts, key points from spin, Iowa Fiscal Partnership, May 2018
This Labor Day could be the low-road benchmark for celebrations of improvements to be seen in the future, reversing current trends against working families.
As always, Labor Day is a day to celebrate Americans’ work ethic and spirit — things that hold promise for better times ahead.
But it is not a time to celebrate what has been happening in Iowa.
A look at the landscape for working families shows this Labor Day could be the low-road benchmark for celebrations of improvements to be seen a year, two years, maybe 10 years from now.
Iowa lawmakers repealed local minimum-wage increases in four counties that acted when state and federal leaders refused. Iowa’s minimum wage is a measly $7.25 an hour and has been held there for 10 1/2 years; some 400,000 workers — and their families — could gain with a raise to $12. (IPP report, 2016) Twenty-nine other states have acted, including all but two of Iowa’s neighbors.
In the middle, Iowa as usual lags the region and the nation, as IPP Senior Research Consultant Colin Gordon showed in a wage update for The State of Working Iowa.
“(T)he wage structure in Iowa is more compressed than it is nationally or in the Midwest. Low-wage workers in Iowa make about the same as low-wage workers everywhere else, but at the higher wages, Iowa workers fall further and further behind. Higher wage jobs are scarcer in Iowa than in most states. And wages in many professions — such as nursing or teaching — trail national and regional peers by wide margins.
“The key point here is not just that wages have stagnated, but they have done so over an era in which the productivity and educational attainment of Iowa workers have improved dramatically.”
If the wage levels weren’t lagging enough already, policy makers have utterly failed Iowa workers by refusing to assure that wages owed are actually paid. Wage theft — refusing to pay wages owed, or violating overtime and employee classification rules — is winked at by a state system that devotes too few resources to enforcement. Lawmakers have refused to act.
Lawmakers deliberately smacked working people with significant legislation in the last General Assembly in at least two other areas:
• They curtailed collective bargaining rights of public employees, making it tougher for them to organize, and tougher for them to negotiate. In the arena where the state, counties, cities and schools should be leading by example on how to treat employees, the Legislature has chosen to push Iowa toward a race to the bottom. And make no mistake about the impact on the economy: Public-sector jobs are 1 in 6 of all jobs in the state.
• They also passed legislation to erode workers’ protection and financial security long provided through Iowa’s workers’ compensation law. A study of the effects of one change, reclassifying shoulder injuries, found that the typical worker with such an injury could expect to receive 75 percent less under the new rules.
On top of these, we see the University of Iowa unilaterally acting to eliminate, or eliminate funding for, its own Labor Center that serves thousands and helps Iowans understand what rights they have in the workplace.
And we can count on a continuing assault on Iowa’s strong and accountable public employees’ retirement plans — not to help employees or actually save money, but to feed the ideological drive against public services that is illustrated in examples above. How better to damage those services than to lessen the attraction of jobs that provide them?
Celebrate Labor Day for the people who work to make our nation great. Keep in mind throughout the day that forces are trying to undermine the security of working families — and that Iowans can come together behind policies to support all.
Think of how much better that Labor Day burger off the grill will taste — in some future year — with a side of responsible minimum wage and workplace protection laws, topped off with a stronger economy that will result as more Americans prosper.
Think about it: How often do you rush off to a ‘7-percent off’ sale?
As IPP’s Peter Fisher noted in 2014, the third link above, “Who’s to say a retailer, with this officially sanctioned ‘holiday’ marketing, won’t bump prices by 10 percent or call off a 20 Percent Off sale that might have been in place?” Instead of revenue for schools, it’s a recipe for a retailer’s windfall.
Iowa media quite often play along, with rarely a discouraging word challenging the notion of the break, questioning whether any break actually results, and, importantly, how much it costs public services. (It was $1.6 million in its first year, 2000, and by 2015 the break was valued at $3.6 million lost to services.)
Neither does the Iowa Department of Revenue shed light on these issues, which are at least as important as a list it offers of what you can and cannot buy tax-exempt on these hallowed anti-tax days.
Certainly, the sales tax is one that disproportionately hits lower-income people harder than high-income people. The evidence is clear on that. And reducing the impact of the sales tax year-round would be a sensible step if paired with an income-tax increase affecting higher-income people — same revenue, fairer approach.
But this break goes to anyone, so those very wealthy Iowans who are the largest beneficiaries of the income-tax cuts passed in 2018 also get an extra break here.