February 07, 2005

Making Iowa a better place to live?

State lawmakers would probably all agree that economic development is an important goal. But they often disagree completely on how to achieve it, with some arguing that good public services create the quality of life that makes a state an attractive place to live--and others arguing reflexively that tax cuts will solve all of a state's woes.

A recent proposal by State Senate Republicans in Iowa illustrates how myopic this second approach can be. The proposal would eliminate all state income taxes for workers under 30. No matter how much you earn, if you're 29 or younger and you work in Iowa, you won't be taxed on a dime of your earnings.

The AP reports that this plan has been greeted with broad, bipartisan, skepticism.

"Do we really think that a lot of people between 20 and 30 make a decision about where to live based on taxes?" said Rep. Jamie Van Fossen, R-Davenport. "Not a lot of those people pay a lot of taxes."

That's my initial question, too. Big corporations have well-documented records of setting up tax shelters in certain states or off-shore, but I doubt many young people want to play that tax-shelter shell game. Fresh out of college, a lot of folks (myself included) move to where the jobs--along with other young people--are. People move to cities like New York, Boston and Washington, DC because they are exciting places to live, not because we'll get a small tax break.

The GOP plan doesn't really get at these more fundamental quality-of-life issues. Iowa's legislators need to be more innovative in their approach to retaining bright young people. In 2003, the state ranked 41st in the nation for percentage of people with a college degree and 33rd in household income. Iowa's problems are not unique to the state. Following a national trend, tuition at Iowa State rose 22% last year. The senators might consider working to provide more state-based financial aid as a means to keep rising stars in-state.

The tax-cut proposal is also rather clumsy in terms of how it will impact people at different stages of their lives. If it is to be revenue-neutral, it would require raising taxes on everyone else--which means either a "rude awakening" when a citizen turns thirty or increased sales and property taxes on taxpayers of all ages.

Another problem with this approach is that (thanks to the state's current fiscal shortfalls) this idea should really be described not as a tax cut but as a tax shift. In the past couple of years, the state has consistently shortchanged local governments by cutting state aid earmarked for property tax reductions. The inevitable consequence? These state spending cuts have led to local property tax hikes, as documented by a recent Iowa Policy Project report.

The GOP proposal sounds like a gimmick rather than a serious tax policy proposal, and it may well be. But if it's designed to provoke debate, it would be nice if the debate focuses on the positive impact that public spending can have on quality of life issues-- not just on the immediate impact of poorly-thought-out tax cuts.


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