New Book: Iowa Tax Reform Options

May 5, 2016

Iowa is a state rich with human capital, but held back by a complicated and out-of-date tax system. Today we're pleased to release Iowa Tax Reform Options: Building a Tax System for the 21st Century, the fifth in our series of state tax reform books. This project, years in the making and months in the execution, involved scores of meetings with elected officials, business owners, interest groups, and stakeholders all over the Hawkeye State. Their insights inform every page of the book. We were proud to work on this project in partnership with the Future of Iowa Foundation.

In this book, we take a deep-dive into Iowa's tax system and present an array of options for making their tax code simpler, more transparent, more neutral, and more stable. Although our recommendations are tailored to Iowa's unique situation, many of the underlying principles could be used to unleash creative and dynamic economies in states across the country.

Compared to the current Iowa individual income tax of 9 brackets with a top rate of 8.98 percent and corporate income tax of 4 brackets with a top rate of 12 percent, the book's options include:

  • Option A proposes a 5.15 percent flat individual income tax (repealing federal deductibility and the marriage penalty), the retention of the current $1,970 standard deduction and $40 personal exemption credit, the repeal of the individual and corporate AMTs, a 6.5 percent flat corporate income tax (repealing federal deductibility and tax credits), restoring a three-year net operation loss carryback, excluding business inputs from the sales tax base, and repealing the inheritance tax.
  • Option B proposes a 5.8 percent flat individual income tax (repealing federal deductibility), a generous $10,000 standard deduction, the repeal of the individual and corporate AMTs, a 6.5 percent flat corporate income tax (repealing federal deductibility and tax credits), restoring a three-year net operation loss carryback, excluding business inputs from the sales tax base, and repealing the inheritance tax.
  • Option C proposes a two-bracket individual income tax with a top rate of 6.5 percent (repealing federal deductibility), increasing the standard deduction to $3,000 and the personal exemption credit to $60, eliminating the marriage penalty, a 6.5 percent flat corporate income tax (repealing federal deductibility and tax credits), restoring a three-year net operation loss carryback, excluding business inputs from the sales tax base, and repealing the inheritance tax.
  • Option D proposes a two-bracket individual income tax with a top rate of 6.5 percent (repealing federal deductibility), increasing the standard deduction to $3,000 and the personal exemption credit to $60, eliminating the marriage penalty, a 7.7 percent flat corporate income tax (repealing federal deductibility and a 50 percent reduction in tax credits), restoring a three-year net operation loss carryback, and repealing the inheritance tax.

The book provides detail on all these options within options so that they can be combined in many ways.

We hope the information proves a useful resource as the state discusses how best to implement a tax structure that can unleash the energy, creativity, and ambition of hard-working Iowans into a force to be reckoned with in the region and across the country.


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