Combating Tax Cuts with Slightly Better Tax Cuts in Iowa

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Iowa Governor Chet Culver has rightly been very vocal in criticizing GOP challenger Terry Branstad’s proposal to slash corporate income taxes and commercial property taxes.  Branstad’s plan ignores the fact that Iowa’s corporate taxes are already quite low, as well as the reality that these tax cuts will have to be paid for – through reduced services (which Branstad has refused to identify), or through higher taxes on individuals. 

Nonetheless, despite the obvious problems with Branstad’s plan, Governor Culver’s campaign this week found it necessary to respond with a tax cut plan of its own.  In a press release heavily emphasizing his anti-tax credentials, Governor Culver proposed on Tuesday a $90 non-refundable tax credit to taxpayers earning less than $200,000 per year (or $100,000 for single filers).

According to the Governor’s calculations, roughly 65% of Iowans would benefit from the credit.  Families earning above $200,000 would receive no benefit.  Similarly, families earning too little to owe income taxes (but who still pay substantial sales, property, and excise taxes) will also see no benefit from Culver’s plan. 

Why a family earning $195,000 is more in need of a $90 tax break than a family below the poverty line is unclear. But if forced to choose between the major candidates’ plans, we can only conclude that Culver’s is clearly the more sensible of the two.

One of the more confusing developments to occur in the wake of Culver’s plan being released was the flurry of complaints from conservatives alleging that the $90 non-refundable tax credit is a form of “class warfare.”  It’s a very odd type of “class warfare” indeed when Iowa’s middle-class are on one side, and the poor and rich are lumped together on the other. 

In the end, though, it’s probably not worth spending too much time worrying about what this particular group of critics has to say.  This is the same bunch that had the audacity to argue that Iowa’s sharply regressive tax system is actually a form of “socialism.”

But putting aside all the rhetoric, one point recently made by Rep. Erik Helland is hard to ignore: “Two weeks before the election? This is a campaign rebate… It's nothing more than campaign politics.”  The sad truth is that Culver’s plan is good politics – probably even better than the platform of the “Rent is Too Damn High Party” in New York. 

No matter which candidate wins, the anti-tax direction that both campaigns have taken does not bode well for tax reform.  Keep in mind that Iowa still offers an enormously costly and regressive deduction for federal income taxes paid, as well as a sizeable break for many types of capital gains income.  Let's just hope the current tax cut arms race we’re witnessing doesn’t set the tone for the next four years.

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