Americans For Prosperity hosted a taxpayer town hall in Sioux City last week. Drew Klein talked taxes along with State Senator Jim Carlin and State Rep. Jacob Bossman.
Prior to the income tax reform of 2017, Iowa had not undergone any substantial tax reform in about 15 or 20 years.
“As a result of that we had the highest corporate income tax rate in the country, ranked 46th in personal income taxes and were middle of the pack for sales tax,” Klein said. “We were in the top-10 as far as the worst states for property taxes as well. We talk about taxes as one big bucket, but the reality is we get taxed a lot of different ways and we weren’t good in any of those.”
Carlin said many of those numbers are still too high. He said the goal will always be to zero income taxes, but the question is how to get there.
“You have to get rid of tax credits, which right now would make some substantial inroads,” he said.
Sioux City struggles competing against neighboring communities in border states. Property taxes have simply skyrocketed, Carlin said.
With 10 percent increases in valuations, and the state saying to pay another 8-10 percent, people cannot afford it.
“Fixed income seniors can’t afford that,” Carlin said. “If there’s one thing I’ve learned in this process, it’s money migrates. We’ve literally seen hundreds of millions of dollars of tax revenue just drive across the river into South Dakota and they’ve found friendlier pastures. Des Moines does not feel the bite as much as we do, so we get the short end of the thing.”
With Sen. Jake Chapman preparing to chair the Senate Ways and Means Committee, Carlin said he expects the committee to really make significant changes.
“Especially in light of the fact we have a budget surplus of $289 million,” Carlin said. “We’ve got some wiggle room. We’ll be in a good position.”
Bossman said Iowa needs to get to a point where it is competitive. He said he doesn’t think the state needs to get to a 0/0 position, but if it could stop the bleeding, that would help.
“The first thing we need to do, especially for our area, is make sure they understand in Des Moines we’re competing with a zero income tax state right across the border,” Bossman said.
Too often, Bossman said, the conclusion is people won’t move out of state. And while that may be true if you’re talking about moving from Des Moines to Maryville, MO, it’s not a big deal in Sioux City.
“You can move two miles that way and keep your same employees or supply chain and keep the same customers,” Bossman said. “Nothing will change, except now you’re not paying taxes.”
Klein said cutting the corporate tax rate will allow corporations to invest more money, which typically means hiring more people. That will lead to a rise in household incomes. That will lead to more money being spent in those communities.
Cutting taxes at the federal level isn’t as complicated as it is at the state level, Klein said, since the federal level can simply print more money.
“As much as I’d love to see my personal taxes zeroed out, I first understand from the state perspective we have to create a better business environment first,” Klein said.
Carlin said it’s important for people to understand that corporate taxes are absorbed by low- and middle-income folks.
“They are the ones paying corporate taxes,” Carlin said. “It’s just tacked on to the price of the good or the service. That’s who is paying corporate taxes — it is not the corporations.”
Bossman said he’s hoping Iowa can become more transparent in its tax policy.
“Iowa has had a severe problem as far as recruiting people,” he said.
Iowa’s tax rates look higher than they are because Iowa allows for federal deductability. The rates are expected to come down in the next few years.
By the time potential new residents are told about federal deductability and how it lowers the tax rates, people are typically not listening.
The surplus may allow the state to speed up the process of getting to the rates Republicans have in mind.
The guys discussed the new property tax reform plan that passed, forcing city and county governments to vote on any property tax hikes of more than 2 percent.
Carlin said just because someone’s house increases in value does not mean the government has the right to take more of your money.
“Government should not become more expensive because your house became more valuable,” he said.
Carlin talked about a study he saw from the last 15 years. The cost of local government in Iowa has grown 125 percent. State government has increased 65 percent. Inflation has gone up 43 percent.
“You just got hit by an enormous tax increase,” Carlin said. “It’s really making life difficult for a lot of people. People wonder why people don’t save any more. People don’t save any more because they can’t. The government is taking too much out of their wallet, too much in property taxes — every way imaginable they are finding one more pocket to draw another dollar out of no matter what it is.”
Carlin floated the idea of a 20-hour work requirement for welfare.
Klein said the hope is for government to control its ideas and how much it will spend. He’s also hopeful growth will be more controlled.
All three expressed hope strides could be taken in 2020, especially with control of the Iowa House at stake.
“There’s going to be the dynamic of needing to try this now,” Bossman said. “This is going to be an interesting year in that there will be some pressure not to do anything big and some pressure to do big things.”
Carlin is hoping to address tax reform for the elderly.
“We’re losing a lot of seniors to Texas and Florida,” he said. “Part of that is giving them a break on property taxes. Fixed income seniors can’t afford property tax increases. Chapman would like to do an across-the-board property tax freeze for all people over 65.”
Bossman said that would help everyone because if seniors can’t afford to stay in their home they will go into a nursing home. And that costs the taxpayer much more than property tax breaks would.
Both legislators agreed the state needs to take a hard look at the return on investment from the $450 million in tax credits.
“If you can prove that there’s actually a return on investment on this tax credit, then it makes sense,” Bossman said. “There are some industries that maybe need a little boost. But if there’s not a return on investment, it makes sense to use that revenue elsewhere.”
Carlin said many physicians, accounting firms, architects and construction firms have moved out of the state.
“If we’re not competitive in that regard, it affects our ability to deliver quality healthcare in Sioux City,” Carlin said.
According to the app money walks, Woodbury County has lost $172.94 million to Union County (South Dakota) from 1992-2016.
“That’s awful,” Carlin said.
Bossman is hoping the state can find continuity. Border communities of Illinois, Wisconsin and Minnesota are more competitive than those communities in other parts of Iowa.