I agree with Iowa Senator Ken Rozenboom that people who voted for the Iowa Constitutional Amendment which created the Natural Resources and Outdoor Recreation Trust Fund were expressing their “feel-good” support for cleaner water and expanded recreation opportunities in Iowa. The Register’s opinion polls also make it pretty clear that a majority of Iowans are willing to pay a higher sales tax to fund these priorities.
As a long-time river canoe paddler, I want clean waters in Iowa as much as anyone. But raising the sales tax is the wrong approach to pay for the prevention and clean-up. Here are three good reasons why Iowans and the Iowa Legislature should not increase the sales tax in order to fund the Trust Fund, and why the Constitutional Amendment should be repealed:First, much if not most of the money will go to pay for subsidies or other incentives to the polluters to encourage them to stop polluting. (Only 7% is guaranteed to go to trails. All other categories are not guaranteed to go to recreation.) Historically, we have required polluters to stop polluting our common environment or otherwise pay fines or other penalties to force them to stop polluting and to pay for cleanup of pollution they caused. Taxpayers should not be bailing out polluters. Taxpayers should especially not pay rent to farmers to temporarily “set aside” land from production in order to reduce run-off. As we’ve seen under the federal program, if the payments stop or crop prices get too high, many farmers put fragile land right back into production.Second, if we were to increase the sales tax,the only way to stop the spending would be to repeal the Constitutional Amendment. Eventually, the need for tax money to pay for pollution prevention or clean-up will come to an end. But the Constitutional Amendment has no sunset provision so money put into the Trust Fund will be required to be spent according to the fixed formula until the amendment is repealed. We really need the flexibility of a legislative solution rather than a rigid Constitutional Amendment to solve our water pollution problem. The Constitutional Amendment should be repealed.Third, the sales tax is a regressive tax that is disproportionately paid by relatively poorer people. Poorer people pay a larger percentage of their income in sales taxes than do higher income folks.It is true that Iowa’s waterways are unacceptably polluted. This is a problem that we need government regulation to solve. A more just and fair way to finance the clean-up of our waters would be to put a tax on the pollutants – namely farm fertilizers and other chemicals. All such taxes collected could be put into a clean water trust fund, which a majority of Iowans support. There should also be appropriate fines to pay the cost of cleanup related to livestock sewage or other pollutants that are spilled into our waters. The basic and just principle is that polluters should pay the costs of prevention and cleanup, not general taxpayers.Regarding improving recreational opportunities, we have already made significant progress toward providing more and better quality outdoor recreational opportunities for Iowans. We should continue on our current incremental path that has worked well rather than significantly increasing taxes.
The title to an essay by A.J. Spiker’s recently published in the Des Moines Register was, “Republicans must ignore pleas to raise our taxes”. (11/262017 – see link below.) The essay advocated for not raising tax rates on carried interest income – bonuses earned by hedge fund managers and real estate development managers. He urged our Senators to make sure the tax bill did not get rid of the special low capital gains tax rate for carried interest. Regular people who earn the same type of bonuses pay taxes at ordinary Earned Income tax rates. For years, carried interest has been tax at this lower special rate and those who benefit from it simply don’t want to lose it. (The same seems to be true for people in every special interest group that gets politically favored tax breaks. The ask our elected representatives to get rid of all the special tax breaks… except for mine… which is vitally important to job creation!)
I thought that a stated goal for tax reform is to simplify our 70,000+ page the tax code. In large part, this means getting rid of the many many special interest tax breaks, and then lowering the tax rates for all. If certain individuals lose their precious special interest tax breaks and actually have to pay more in taxes, so be it. They should feel lucky for what they got in the past. This is part of “draining the swam” that our President has called for. I urge our elected federal representatives to resist the tremendous pressure that they are under from those who received the tax breaks and their lobbyists, and proceed to get rid of the carried interest and many other special interest tax breaks, and lower general tax rates for all.
President Trump has proposed a maximum 25% tax rate on income that individuals receive from “pass through entities”. Pass through entities are businesses that don’t pay corporate income taxes, but rather pass their net income each year through to the owners to be taxed as part of the owners’ individual tax return. These pass through entities include S-Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships. Currently, income from pass through entities is taxed at the same rate as any other ordinary income – up to a maximum rate of 39.5%. (President Trump’s proposal for ordinary income for most taxpayers is a maximum tax rate of 35%.) He justifies the lower tax rate for pass through entities because, he says, these pass through businesses are the job creators.
This begs at least two questions: Do pass through entities really create more jobs than non-pass through entities? Even if so, why should the income of an employer be taxed at a lower rate than an employee if they earn the same amount? Tax fairness would dictate that two people with the same income would pay the same amount of tax, regardless of source.
Regarding job creation, it is important to know that pass through entities are not just manufacturers, wholesalers or retailers, who may or may not be job creators. They are also professionals such as doctors, lawyers, accountants. Most hedge funds and private equity funds are pass through entities. About 95% of all businesses are pass through entities. Of those, about 99% have revenues of less than $10 million. The 1% of pass through entities with revenues of more than $10 million earn about 83% of all profits! So, some pass through entities are very large, and many owners of pass through entities have very high incomes. Is it fair for business owners to pay at a 25% rate while regular workers with the same income pay at a 35% rate? I don’t think so.
I expect to write several blog posts on President Trump’s tax proposal. The idea of reducing tax rates is a good one – especially if the total plan is revenue neutral and doesn’t increase our $20 Trillion debt. This means that tax reform that reduces rates must also reduce special tax breaks for politically favored groups and/or reduce spending. I hope that Congress, which controls all tax legislation, will not “bet on the come” – that is assume future tax revenue will increase due to future growth in the economy. Our government uses a 10 year look forward to determine the deficit/surplus effect of any change in taxing or spending. In recent decades, it seems that all tax and spending changes have significant costs up front with the promise of savings toward the end the the 10 year period. Let’s not keep doing that.
The Iowa House of Representatives should definitely not pass HF 230 – to extend the school infrastructure sales tax for another 21 years – to 2050!
In 1998, we were told that the 1% local option tax for school infrastructure would be temporary – for 10 years. In 2008 the temporary tax was changed from a local option to a state-wide sales tax, and was extended for another 22 years – to expire in 2029. Even though we still have 12 years left of the tax, school districts are pressuring the legislature to extend the tax for an additional 21 years!
Why would they want to do this? Because years ago, they borrowed against the future taxes and have already spent the taxes that will be collected during the remaining 12 years. If the tax is extended again, you can bet that some school districts will again quickly borrow against the future taxes and spend the money decades before the taxes are collected.
Do we really need this much money for school infrastructure. Some school districts might need the money, but it appears that many school districts are flush with money and already have excellent facilities. We really should wait until 2029, then allow local school districts have their own local option tax if the local taxpayers believe there is still a need.
Link to Register article: