By contributing editor Christian Fong
Today I’m wearing black. Like Johnny Cash, "I wear it for the poor and beaten-down." You see, I can’t shake a profound sense of sadness. Like when you hear that good friends have chosen an "easy divorce" over counseling. Or a buddy starts drinking again, a couple of months after rehab. I’m talking about the Des Moines legislative proposal to raise income taxes on about one-third of Iowans. It is tax policy that is completely divorced from reality, sobriety and rationality.
Hawkeye Review readers should understand that the core issue is about federal deductibility of federal income tax. A worthy topic. Iowa’s two, umm, "top economists" are split on this issue. Professor David Swenson, of ISU, thinks the deduction should end, even though it raises taxes in Iowa. The Armchair Economist (yours truly) thinks highly of Dr. Swenson’s views on many topics, but sees a different reality, right here on the ground, working hand-in-hand with everyday Iowans.
Asking for tax hikes on Iowans? Equivalent to praying for more rain in Fargo.
Instead, this is my income tax proposal:
Eliminate deductibility of federal taxes, and lower all marginal state income tax rates to the point that no working Iowan of any income level will see their taxes rise.
Photo & article: Boston Globe
Need a few talking points for the current plan? Here are four straight-forward reasons the plan to raise taxes is a terrible idea.
1) Raising taxes in a recession will eliminate jobs. I am the current chairman of the Cedar Rapids Chamber’s Small Business Task Force. There, I talk to many small business owners who feel a profound sense of loyalty and dedication to their employees. They will do nearly anything NOT to cut jobs. At the same time, margins are incredibly thin, sales are slowing and debt burdens are rising to "flood levels" to get through the recession. Businesses are, literally, just getting by right now. As someone who is close to the situation, I can assure the reader: this tax plan would cost us jobs.
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Even Obama acknowledges that his "We’ve got to spread the wealth" plan is going to have to wait. This Des Moines plan to raise taxes on higher income folks (read: "small business owners", "larger farms", "people who stayed in school") is contrary to even the national Democratic leadership. How sad is it that we might find ourselves "left of Washington" on tax policy.
2) This plan is actually a tax on education. Wealth in Iowa is primarily driven by two things: Education and Work Ethic. (In other states wealth is created by entrepreneurship, but we’re last in the nation for that, so we skip it.) Recall the Regents annual clamor for more money, knowing that more education equals more economic opportunity? Whatever you may think of the Regents, they are absolutely right: education typically leads to greater income and wealth. So:
This tax plan is a tax on education.
Governments tax things they want less of. Why does Des Moines want to tax, and create another disincentive, for higher education? We do want our kids to stay in school, don’t we? (I do!)
In fact, tax policy only makes worse the economic "education tax" that Iowans pay. Consider, in Iowa our least educated folks (most are good hard-working Iowans) make 15% more than the national mean for that educational demographic. Our college-educated folks make 15% less than the national average for that education level. Now, these are good hard-working Iowans too, who just happened to stay in school. The result: economic policy already creates a 15% tax on the income of higher-paid, highly educated Iowans. It is the key cause of why our kids are leaving Iowa in droves. Let’s not add to the problem with a broken tax policy.
3) Political history is clear: voters punish politicians who break "no higher taxes" pledges. To his credit, Gov Culver has gone on record that he opposes increasing taxes. On March 6th of this year, he said, "We have many important issues to address this year…but raising taxes on hard-working Iowans is not one of them" This is his recession-time promise: No new taxes. I offer him an "A+" for that stand, and now ask him to honor it. If he doesn’t honor that promise…well, voters booted out Bush Sr. for breaking the same promise, in an economic environment better than today’s.
4) Ethics so clear, even a 5-year old can do itSenate Majority leader Mike Gronstal was clear that his motivation was in trying to help middle-class Iowans, by taking from the educated, hard-working higher income folks, "Obviously you’ve got to take that from somewhere." I’m glad he was so honest about it.
Senator Gronstal, that money is not yours to take.
Why is this concept so difficult to understand? My five-year old recently learned a kids version of the Ten Commandments, and will proudly recite them over and over. His version of the 10th commandment says it plainly, "If your friend has something you like, you shouldn’t want to take it for yourself." (This week, the same 5-year old said of Cedar Rapids, "Downtown smells like the factories are tooting.")
You got to love that age; they call it like they see it…or smell it. And this current plan stinks. For those that tend toward outrage, if there was ever a plan that deserved it, this is it. I’d like to work to fix the plan though. Let’s lower those marginal rates and make this a win-win for all.
Armchair Economist (Christian Fong) can be followed on Twitter here.
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