[Speed Gibson,
Sunday February 6, 2005 at 9:20pm]
How ya Gonna Keep'm Down on the Farm?
Since my dad and my wife's family are from Iowa, the article about a "brain drain" in this morning's Minneapolis Star Tribune stood out.
First of all, as the article notes, Des Moines will never be a Minneapolis, let alone San Francisco. There will continue to be ever more people leaving for better weather or (what they perceive to be) better culture. A smaller number will move or return to Iowa, for it does indeed have its advantages in the form of "big city" negatives they don't have.
Now as to the upper-middle classes who are at least open to the idea of settling in Iowa, why are they leaving? Is it because they're overtaxed? Partially, yes.
The Tax Foundation's summary of Iowa's tax climate shows that overall, Iowa is roughly on par with the national averages. But if you look deeper, you find a very progressive system. The top personal income tax rate is higher only in California, Montana, Oregon, and Vermont. The high income "brains" that are draining away can clearly do better in many other states. But I wonder if that's the real problem.
The Iowa Corporate Income Tax, which quickly reaches the top rate of 12% is the highest in the nation (2003). Large employers, the kind that hire these "brains" are going to look hard at that number before investing in Iowa. And if the jobs aren't there, neither will the professionals that Iowa now seeks to retain.
So while Iowa has a nominal average tax rate, its steep progressivity is clearly going to keep many high income people from investing or working there.
Iowa should first consider abolishing its corporate income tax and soften the progressivity of the personal income tax. They will need to cut spending to do it, but I suspect there are many opportunities. Iowa has 99 counties, for example, more than Minnesota, more than California! With modern transportation and communications, Iowa could cut that to say, 33. Iowa also benefits from a net inflow from the Federal Government, about $1.23 in for every $1.00 out according to the Tax Foundation.
The results should well be worth the minimal pain.
Iowa, ever the humble suitor, is still struggling to persuade well-educated young adults to stay put, or move back.
But now the state may get brash -- by offering them cash.
Iowa's legislature has begun debating an extraordinary bill to exempt anyone under 30 from paying state income tax. No other state with the same affliction -- an exodus of residents commonly called "brain drain" -- has taken such a step.
First of all, as the article notes, Des Moines will never be a Minneapolis, let alone San Francisco. There will continue to be ever more people leaving for better weather or (what they perceive to be) better culture. A smaller number will move or return to Iowa, for it does indeed have its advantages in the form of "big city" negatives they don't have.
Now as to the upper-middle classes who are at least open to the idea of settling in Iowa, why are they leaving? Is it because they're overtaxed? Partially, yes.
The Tax Foundation's summary of Iowa's tax climate shows that overall, Iowa is roughly on par with the national averages. But if you look deeper, you find a very progressive system. The top personal income tax rate is higher only in California, Montana, Oregon, and Vermont. The high income "brains" that are draining away can clearly do better in many other states. But I wonder if that's the real problem.
The Iowa Corporate Income Tax, which quickly reaches the top rate of 12% is the highest in the nation (2003). Large employers, the kind that hire these "brains" are going to look hard at that number before investing in Iowa. And if the jobs aren't there, neither will the professionals that Iowa now seeks to retain.
So while Iowa has a nominal average tax rate, its steep progressivity is clearly going to keep many high income people from investing or working there.
Iowa should first consider abolishing its corporate income tax and soften the progressivity of the personal income tax. They will need to cut spending to do it, but I suspect there are many opportunities. Iowa has 99 counties, for example, more than Minnesota, more than California! With modern transportation and communications, Iowa could cut that to say, 33. Iowa also benefits from a net inflow from the Federal Government, about $1.23 in for every $1.00 out according to the Tax Foundation.
The results should well be worth the minimal pain.