Former Iowa Governor Terry Branstad (R), who is now running to get his old job back, has proposed slashing Iowa’s corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. in half and reducing commercial property taxes. At 12%, Iowa has the highest top marginal corporate income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. of any state.
Branstad’s corporate income tax proposal would cost the state treasury about $80 million. By getting rid of the tax, as Vander Plaats and Roberts recommend, Iowa would need to raise or cut roughly $160 million.
Branstad proposed reducing the corporate income tax rate from 12 percent to 6 percent, and commercial property taxes by 35 percent, at a press event at an Ankeny software company.
Businesses are assessed at 100 percent of their property value. Branstad proposed allowing new businesses to start at 65 percent and to allow existing businesses to gradually reach 65 percent.
Branstad’s opponents in the primary, Bob Vander Plaats and Rod Roberts, have proposed eliminating the corporate income tax. Iowa borders South Dakota, one of six states with no corporate income tax.
Economists have long understood that corporate income taxes are double taxes, since the same income is taxed once as profit, and once as individual income when distributed as dividends to shareholders. Contrary to popular misconception, the ultimate burden of corporate income taxes doesn’t fall on corporations, but is instead borne by workers, shareholders and consumers.
Nationwide, states’ reliance on the corporate income tax has been falling over time, from a high of 9.5% in 1977 to about 5 percent today. The nightmarish administrative complexity associated with apportioning income from multistate companies to the various states, combined with a mess of inconsistent apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. and nexus rules designed by each state to maximize tax revenue, results in a tax that raises very little revenue while imposing enormous costs on the economy.
Iowa has been a leader in other tax reforms and has a chance to be a leader here as well.
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