BHI examines tax cut for Iowa

from NewsLink, Vol. 1, No. 2, Winter 1997

Following on the success of its modeling of the Oklahoma economy, the Beacon Hill Institute has moved on to Iowa.

At the request of the Iowa legislature, BHI put its econometric skills to work on a proposed 15% cut in the state income tax. At 9.98%, Iowa's top marginal tax rate is the fifth highest in the nation. One of the consequences of this is rapid tax-revenue growth combined with sluggish economic growth. According to the Tax Foundation, over the period 1985-1995, Iowa ranks eighth among all states in terms of average annual growth in tax revenues relative to personal income.

Using methods applied successfully to Massachusetts, BHI estimated the effects of the proposed tax cut on Iowa jobs, production, capital spending and tax revenue. Preliminary results show that the proposed tax cut would prove a powerful stimulus to the Iowa economy.

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