March  21,  2003

"Discounted" Tax Model for Iowa; Your Blueprint For Prosperity
By:  Kevin McLaughlin

Goals:
 
To create a tax structure that will solve Iowa's funding shortfall for the
long-term and take Iowa from worst-to-first in economic growth.
 
To do it in a way that holds younger and senior Iowans in the State, while
attracting new residents and businesses.
 
To accomplish these goals with the least amount of risk and at the lowest
possible cost.
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It needs to be progressive.

To not only create a model that takes Iowa from worst-to-first in economic
growth, but also to create a model that helps the United States transition
from the byzantine and punitive system we now have, to a simpler and more
efficient tax code that rewards risk-taking for entreprenuers while
letting each person keep more of what he/she earns.
 
To do it in a way that is easily understood by people from all walks of
life, and puts anyone in opposition at an immediate disadvantage.

Lastly, to promote saving and investing to safeguard our futures while
keeping both Iowa and America at the forefront in an increasingly
competitive world.
 
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How Tax and Deficit Problems Usually Occur:

Historically, these problems come about over long periods of time during
decades of war and external threat.

In the case of the U.S., there have been almost eight decades of govenment
solutions to a variety of problems like fascism, communism, the Great
Depression and The Cold War.

Because the government successfully defended the Country, and helped with
economic solutions to the nation's ills, people have come to believe that
government is not only supposed to solve our problems, but that it is
actually capable of taking care of us.  On the state level, Iowa's residents
have also placed too much faith in politicians and the government, on the
whole.

Consequently, government spending tends to rise with the cost of defense
militarily, and then gets completely out of hand with attempts at social
engineering.

The situation becomes critical at times like these, with economic downturns
and budget shortfalls, and the future will belong to those who can
capitalize on the problems of others.

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Iowa's Situation and Opportunity:  "Discounting"

Iowa is a high-tax state, surrounded by high-tax states.  The first one to
discount will get the biggest benefit, and the rewards go on, and on for
decades.

The terms "flat" and "single rate" have already been politicized as Steve
Forbes and Jack Kemp tried to use them.

America is a country of consumers and we have to speak that language if we
want to inspire supporters and discourage detractors.

"Discounting" means "something for me" and every American already believes
that every other American is entitled to a discount on every conceivable
product, or service.

Using the term "DISCOUNT" puts those in opposition in the position of
having to explain to their constituents EXACTLY WHY THEY ARE NOT ENTITLED
TO A DISCOUNT ON THEIR TAXES.

Finally, discounting works in mass-merchandising because so many people
benefit.  Wal-Mart went from a standing start to the largest grocer in the
country in just three years, and they didn't do it by raising prices.
Discounting offers Iowans the same potential and rewards in solving our
problems and enriching ourselves.  And, it can happen just as quickly.
 
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Structure:  The Dual System and the Discounted Rate
 
The first rule has to be that nothing is taken away from anyone.
Therefore, let Iowans calculate their taxes with all their deductions and
then with their new discount.  They should be free to file on whichever
basis puts the most money in their pockets, immediately.
 
Duality reduces opposition because nothing is being forced on anyone, and
discounting is automatically progressive: the person making $350,000 pays
ten times the tax that a person making $35,000 pays.
 
The rate should be low, at only 1%-2% of earned income.  A rate of 1.5%
would be half of what Illinois currently charges and would represent a
discount that is steep enough to get plenty of people and businesses to
move to Iowa. 
 
There should be no tax on interest income, dividends, pensions, Social
Security and, just like Bill Clinton did for homeowners, no capital gains
tax.
 
Iowa could piggy-back on the successful advertising campaign employed by
the auto industry:  "If you're an Illinois resident, move to Iowa and
we'll give you a discount on your earned income taxes at only 1.5%!
You'll save 50% and you'll pay  0% in taxes on your interest income,  0%
on dividends,  0% on pensions and Social Security, and, just like Bill
Clinton did for homeowners, you'll pay  0% on your capital gains!"
 
This way an effective ad campaign at an annual cost of $5-10 Million in
targeted states like Minnesota, Ohio, Wisconsin and Illinois would be more
cost effective, and much less risky than the $1.6 BILLION DOLLAR fund
being proposed to  pick companies competing for grants and loans.
 
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Precedents:  A Look at Countries Which Have Been Enriched By the Discounting
Approach

Germany and Japan were decimated after World War II and made extraordinary
recoveries with "discounted" taxes.

Hong Kong was even more dynamic because it received no Marshall Plan
funding.  And yet this city ran a $40 Billion surplus by 1997 with an
average tax on earned income of only 7%, (no tax on interest, dividends, or
capital gains).  And yet half the people in Hong Kong don't even pay taxes.

Korea, one of the Asian Tigers, has benefited just as dramatically with the
"discounted" method and stands in stark contrast to North Korea, in
particular.

The most recent examples of the success to be gained by discounting tax
rates are Ireland, which is currently paying a price for having gone after
development-stage companies too heavily, and Russia, which went to a
discounted rate about three years ago.

================
 Competition:  Which States Are Most Vulnerable to Iowa's Attack Right Now

Minesota's projected deficit is $4.6 Billion this year and they have no
clear plan to address it, save not raising taxes.
 
Ohio's deficit is expected to be $4 Billion and Republican Governor Taft
is planning to RAISE taxes.

Wisconsin's deficit is expected to be $2.6 Billion and they plan to slow
their rate of spending growth.

Illinois' at $2.3 Billion and they just went hard "left" last November and
have no plan in place.

A discounted rate on the basis described above, coupled with a BLARING AD
CAMPAIGN, would be very effective in attracting people and businesses who
want to take advantage of Iowa's lower rates, and who also want to get out
of the way of the higher rates that will likely come in these very
vulnerable states.

===================
Why People and Businesses Move:


If Iowans are constantly willing to move out of state to avoid taxes, what
more proof do we need that people will move here if their tax savings are
large enough?

As just mentioned, people and businesses will move to take advantage of the
discounted tax rates in Iowa, BUT ALSO TO AVOID THE PROSPECT OF STILL HIGHER
TAXES IN THEIR CURRENT STATES OF RESIDENCE.

Iowa needs to help people and businesses build value and wealth:

The discounted tax puts money in Iowan's pockets immediately by letting them
keep more of what they make.  If not, then they can file with their
deductions.

Discounting at a low rate also attracts so many people and businesses from
out of state, that Iowans will see their property values rise over the
long-term, building real wealth.

If our tax rate on earned income is discounted steeply enough so as to add
$100,000 in profits to a Proctor Mechanical Corp., then the owner will know
that when he/she goes to sell that business at 10-20x the company's
earnings, that will mean an extra $1,000,000-$2,000,000 to them.  And that
enhanced valuation gets people and businesses to move.
 

=================
Current Proposals and Expected Problems:  Iowa's "Flat Tax" at 3.5%

With Illinois at 3.0% currently, no one is going to move to Iowa to pay an
extra 1/2% in taxes.

This proposal is accompanied by a loss of deductions, which has already
brought vocal objections from Iowans for Tax Relief, of all people.

The current flat tax proposal is also accompanied by proposed tax increases
in the sales tax, which is regressive and certain to cause objections.

The flat tax proposal boasts of being "revenue neutral" when Iowa really
needs tax reform that's REVENUE POSITIVE.

Revenue growth, a la Wal-Mart, only comes through discounting your prices,
not raising them.

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The Multi-Billion Dollar Fund Proposal:  Big Risks

There is currently a plan being proposed to leverage Iowa into a $1.5-2.0
Billion "growth" fund to attract businesses to this state.

This is like paying people to stay in your hotel: the place will be packed
as long as your money holds out.

Many elected officials are also determined to focus on venture-stage
businesses in hightech and biotech, which adds risk for taxpayers.

Iowa needs to attract PROFITABLE businesses for two critical reasons:
         Profitable businesses will come if our discounted rates are low,
and they will stay because their values will have     been enhanced.   

    The larger the number of successful people and profitable businesses
we can take away from neighboring states,     the more depressingly
difficult it will be for competing states to match, or exceed our discounted
rates.

Our situation will be bad enough if we don't discount our tax rates, because
profitable businesses won't move to Iowa, knowing that their tax burden
won't be reduced. 

Worst case, the venture-stage businesses that do succeed will be likely to
move out of state in order to protect their profits and enhance their
values, (sound familiar?).

Going after venture-stage companies is very risky based on our recent
experiences with the Internet bubble.  Who honestly believes that a state
with financial problems is going to find its salvation, in effect, picking
stocks?

Lastly, Iowa should be using most of its resources to keep budget deficits
down while transitioning to discounting instead of borrowing to roll the
dice.

 

===============

Communicating the Simplicity, Transparency & Benefits of Discounting:

When you go to Wal-Mart and buy a tube of toothpaste, you pay the same price
as the two people in line ahead of you, even if one is unemployed and the
other is President George W. Bush.  No one complains, or pickets the store,
because everyone knows what everyone else is paying.

Taxation should be constructed the same way but, with all the deductions and
credits in play, not knowing what others pay causes distrust.

Distrust leads to "non-compliance," also known as cheating, and almost
everyone does it.  It's just a matter of degrees.

Discounting works to everyone's benefit because it eliminates the
complexities that make cheating easy to get away with.

Put another way, you want a tax system that's simple and transparent so that
it's not only easy with which to comply, but because it's also far more
difficult to cheat.


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Discounting and transparency work for everyone involved:

For the taxpayer because paying on earned income at a 1.5% rate will put
more money in most people's pockets,   won't be time consuming, and they
won't have to pay anyone to do their taxes for them.

The government's tax revenues rise significantly because compliance improves
sharply as more residents are retained and new ones arrive.

And the cost of government actually goes down because armies of auditors are
no longer necessary to chase down tax evaders.

================
Discounting:

Discounting puts more money in your pocket immediately, and helps you build
long-term wealth through rising property values.

Discounting will solve Iowa's revenue problems while taking us from
worst-to-first in economic growth.

Discounting is automatically progressive.

Discounting will also set an irrefutable example for national tax reform,
which will be critical in keeping America at the forefront in an
increasingly competitive world.

Discounting will promote saving and investing to safeguard our futures and
those of our children.

Discounting reduces the risks for taxpayers and gets our economy growing for
the lowest possible cost.

Discounting has been made easy to understand, thanks to the auto industry
promotions, and puts its detractors at the immediate disadvantage of having
to explain to their constituents why they are not entitled to a discount on
their taxes.

Don't be a Democrat or a Republican on this critical issue.  Simply, BE AN
IOWAN TODAY.  SUPPORT DISCOUNTING.