TAX FREEDOM DAY® TO ARRIVE APRIL 17TH IN 2005

Washington, D.C.—Tax Freedom Day® falls on April 17 in 2005, according to the Tax Foundation’s annual calculation using the latest government data on income and taxes.

Tax freedom comes two days later than it did last year in 2004 but still considerably earlier than in 2000, when the boom and bubble pushed tax burdens to a record high, and Tax Freedom Day was postponed until May 3.
  “The federal government cut taxes every year for the last four years,” said Tax Foundation President Scott Hodge, “and because the bubble in 1999 and 2000 boosted tax collections to artificially high levels, the drop since then is all the more dramatic. Now the tax burden has resumed its more typical upward course. As economic growth pushes people into higher tax brackets, tax collections grow faster than incomes.”

 The report is Tax Foundation Special Report No. 134, “America Celebrates Tax Freedom Day®,” by Hodge and Tax Foundation economists Curtis Dubay and Sumeet Sagoo. The report traces the course of America’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, calculates a Tax Freedom Day for each state, compares tax payments to other typical consumer expenditures, and projects the future course of Tax Freedom Day.

 Tax Freedom Day by State

Four out of the five states with the heaviest tax burdens and the latest Tax Freedom Days are in the northeast: Connecticut (May 3), New York (April 29), New Jersey (April 25), Massachusetts (April 24) and Wyoming (April 24). In general, where the cost of living is high, and salaries are commensurately higher, taxpayers are hard hit by the federal income tax’s progressive structure. As a result, they must work longer to pay their disproportionate share of the tax burden, and they wait longer to celebrate Tax Freedom Day.

The five states with the lightest total tax burdens celebrate Tax Freedom Day the earliest. Alaska’s April 2 is the earliest of all. Alabama (April 4) and Tennessee (April 6) have the second and third lightest tax burdens. South Dakota and Mississippi round out the five most lightly taxed states, celebrating on April 7. Iowa’s Tax Freedom Day fell on Saturday April 9, 2005- two days later than last year. However, this is seventeen days earlier than the year 2000, showing the progress we have made at lowering Iowa’s overall tax burden.

ECONOMY UP, REVENUES INCREASE – TAX INCREASE NOT NEEDED

 On Friday, April 8, the Revenue Estimating Conference (REC) met and increased the general fund revenue estimates for FY 05 and FY 06.  The improving economy and corresponding increase in tax collections deflate the argument that a tax increase is needed to fund spending priorities.  The REC increased the FY 05 estimate from $5.399 billion (2.7 percent) to $5.473 billion (4.1 percent).  In net dollars (after refunds, transfers and accruals are figured in), it means an extra $79.5 million in revenue for FY 05. 

 If the current level for supplemental appropriations ($80 million) is agreed to, that would leave $230 million in the ending balance that would go to repay the Cash Reserve Fund (CRF), which was used to fund the property tax credits ($159.6 million).  The FY 06 estimate increased from $5.496 billion (1.8 percent) to $5.581 billion (2.0 percent).  In net dollars, it means an extra $85 million in revenue in FY 06. 

 Under the expenditure limitation law, the Legislature must use the December REC estimate for the FY 06 budget and cannot spend any additional FY 06 revenue due to an increase at a later meeting of the REC.  (This is to prevent late session pressure being applied to the REC to increase revenue in order to increase spending to reach a compromise on the budget.)  Therefore, even though the REC increased net general fund revenue by $85 million, by law that must go to the ending balance and not be spent.

 The REC also increased the projection for gambling tax deposited into the RIIF by $8.3 million for FY 05 and FY 06, for a total of $16.6 million in new gambling revenue.  These funds are desperately needed because of the shortfalls in the Rebuild Iowa Infrastructure Fund (RIIF) in FY 06 and FY 07.  The REC said that personal income tax, sales and use taxes and corporate income tax continue to exceed the December REC estimate, and those increases were the primary reason for increasing the estimate.  According to the REC, some of the increase in income tax collections is due to an increase in farm income and more employees working overtime.  Through yesterday, actual year-to-date revenue had grown by 6.3 percent compared to FY 04.

  If these numbers hold up, FY 05 would end with a $230 million surplus and FY 06 would end with a $143 million surplus.  The bottom line is that the increase in the REC estimates supports the House GOP budget plan that funds our priorities of education, health care and public safety while at the same time repaying funds borrowed in past years without raising taxes.

How is the rate of the property tax determined?

1. The value of property is established.  The assessor (or the Iowa Department of Revenue) estimates the value of each property.  This is called the "assessed value."

2. The assessments of all taxable properties are added together.  The assessor totals the assessed value in each classification and reports it to the county auditor.

3. The state examines total assessed values and equalizes them.  Each assessor sends the reports, called "abstracts," to the Iowa Department of Revenue.  The abstract shows the total taxable values of all real property in each jurisdiction by classification of property, not by individual property.  The equalization is then applied.  Equalization occurs every two years (odd-numbered years) to ensure that property values are comparable among jurisdictions and according to law.  Following the equalization orders, the "assessment limitation" is applied.  This process is called "rollback" and is used in response to inflation.

4. Budgets are established.  Each taxing authority determines its own budget.  The budget includes the cost of providing services, the amount of aid received from the federal and state governments, the amount of money remaining from previous years, and revenue from other charges for services.  Each approved budget is submitted to the county auditor.

5. The tax rate is established by the county auditor. 

Any property tax credits are then subtracted from the taxpayer’s property tax bill.

Ways & Means Update

Bills introduced in committee this week:

HSB 298- A study bill relating to the establishment by certain cities of sales tax increment financing districts. 

House File 853 – An Act providing that contributions made to certain school tuition organizations may be treated as credits under the individual income tax and including an applicability date provision.

House File 851 –An Act relating to fees imposed for certified copies of death certificates.

House File 854 –An Act relating to various provisions administered by the insurance division of the department of commerce concerning premium tax refunds, the interstate insurance compact, insurer insolvency proceedings, individual health insurance, the small employer carrier reinsurance program, insurance applications, the Iowa comprehensive health association, fire insurance policies, the Iowa insurance guaranty association, the FAIR plan, motor vehicle service contracts, investments by county and state mutual associations, reciprocal or interinsurance contract premium rates, unauthorized activity of insurance producers, and annuity contracts for cemetery and funeral merchandise and funeral services, and making fees and penalties applicable and providing effective and retroactive applicability dates.

House File 852 –An Act relating to an inheritance tax credit for transferring a portion of an inheritance to an entity for capital investment, programming, including education, performance, and access, in arts and culture and providing a penalty.

House File 856 –An Act providing a sales and use tax exemption for certain nonprofit organizations that build or repair low=income dwellings.

House File 857 –An Act relating to the transferability of eligible housing business tax credits for new housing investment under the enterprise zone program.

House File 806 –An Act relating to the establishment of a form of business association referred to as a cooperative, and providing for fees and tax credits, providing penalties, and providing an effective date.

House Study Bill 286 –An Act establishing an economic development tax credit certificate transfer program.

House File 841 – An Act relating to health care reform, including provisions relating to the medical assistance program, providing appropriations, providing effective dates, and providing for retroactive applicability.

House Study Bill 292 –An Act relating to the county recorders' county land record information system project and providing an effective date.

House Study Bill 283 –An Act relating to original jurisdiction over actions seeking declaratory judgments on constitutional nexus issues for sales or use tax purposes. Declaratory Judgment

House File 437 –An Act relating to reimbursement of costs for certain appeals of the action of the local board of review relating to property assessments.

House Study Bill 296 –An Act providing an exemption from and a refund of sales and use taxes on materials and services used in the construction of a building or addition to a building to be used as a collaborative educational facility and including effective and applicability date provisions.

House Study Bill 291 – An Act relating to a sales tax holiday for purchases of certain computers during certain times.

Senate File 395 –An Act relating to the activities of the grape and wine development commission, and providing for the transfer of wine gallon-age tax revenues to the grape and wine development fund.