Will cutting taxes really benefit Iowa’s economy?

Now the New Year has arrived, I’m preparing for the Iowa Legislature to convene. And surveying the preliminary media coverage, it looks like the usual battle over taxes vs. spending. The rub this year is an $800 million budget surplus.

Many of our state’s Republican legislators are set to give that money back to the taxpayers in the form of tax cuts, even though the surplus is largely the result of major cutbacks in state services.

But of course there’s the question of which taxpayers benefit. Will cuts benefit working Iowans who really have tightened their belts? Or will it be turned over to corporate interests under the guise of stimulating economic growth? I’ve been hearing about tax cuts stimulating economic growth since I was a kid, and I’m still waiting.

Ronald Reagan promised the miracles of supply-side or trickle-down economics when I was finishing high school. Those tax cuts led to a huge deficit when he left office in 1989. Yet I heard the same thing from state legislators when I served as a school board director after my return to Iowa in 2001. Instead of maintaining a reliable revenue stream to adequately fund state services like education, legislators were more concerned with cutting taxes, often via tax exemptions or deductions for special interests.

This left local public officials like me the task of making up the difference either by cutting services or asking for local tax increases – in most cases via property taxes.

And we’ve all seen the results of the cuts – personnel and positions eliminated in our schools; county services consolidated, limited or discontinued. It’s the flip side of the cutting taxes to create prosperity coin – cutting taxes means less services for the public. The real question is who really prospers from those cuts?

Too often I’ve found it means fatter profits for corporations who’ve used the tax issue as leverage to settle in our state. And as many communities can attest, that doesn’t mean these corporations will stay.

No, my research throughout the last 30 years has indicated that tax cuts, especially on the upper income brackets and corporations do little to stimulate growth. In fact, some of America’s periods of greatest growth were when taxes were much higher than the current rates. Those taxes built the infrastructure we benefit from today. Unfortunately, too many taxpayers accept the line that all taxes and government spending are bad.

One of the most recent studies of income tax rates by the Congressional Research Service [http://tpmdc.talkingpointsmemo.com/PDF/0915taxesandeconomy.pdf] concluded: “The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth.”

So as our state legislators prepare to debate what to do with Iowa’s budget surplus, I hope citizens will pay attention and ask, “Who’s going to benefit?”

Personally, I’d like to see that money reinvested in Iowa to rebuild infrastructure and restore funding to agencies and services previously cut, like education. And instead of more tax cuts, I’d like to see us bring in more revenue by closing corporate tax loopholes.

This year, let’s not fall for the usual “tax cuts stimulate growth” line.