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April 2012 Policy Study, Number 12-5

   

The Negative Consequences for Iowa of an Enterprise Value Tax

   

Why the EVT is bad for Iowa:

Impact on Jobs:

   

 

To consider the potential impact on jobs, in Table 3 we present an estimate based on a simple proportions model comparing Iowa and Massachusetts where there is a STAMP model that measures the job loss potential when new taxes are imposed. Based on this analysis we have concluded that Iowa will lose jobs from the EVT.

 

 

Using very conservative assumptions, at least 1,614 Iowans will be laid off or fired within one year of imposition of the EVT. To consider how many more jobs may be impacted, we present in Table 4 the number of Iowans employed by the various industry sectors of the economy.

 

 

The four largest sectors of the Iowa economy in dollar terms are Finance and Insurance, Information, Manufacturing, and Real Estate and Rental and Leasing. Thus it is likely that the largest impact of the proposed EVT would fall on businesses and workers in these four industries in Iowa. If you examine what has happened in terms of impact on job creation and destruction in these four sectors between 2008 and 2010, you can see that Iowa has already lost nearly 50,000 jobs. The one “shining exception” is Finance and Insurance which has added 7,820 jobs during that same two-year period. Given that the EVT was originally designed to target partnerships in the financial services community, it is hard to understand why any politician representing Iowa would support such a potentially job-killing measure, turning a sector with job creation into one that has job destruction like so many others.

 

If capital-gains taxes are doubled, it is not likely that employers will lay off half their workers, but if the increased tax burden causes them to lay off just one percent of currently employed workers, the impact of the imposition of the EVT could be 15,922 workers! If the impact is only one percent of the top four industry sectors burdened by the tax as bolded in Table 4, the loss of jobs could be 4,253! Given that the purported objective of the American Jobs Act is to help create, rather than destroy jobs, this analysis should give policy makers serious pause.

 

   

 

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