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April 2012 Policy Study, Number 12-5


The Negative Consequences for Iowa of an Enterprise Value Tax





The arguments and data provide evidence that there is a negative impact to the imposition of an EVT. However, it would appear that the burden rests on the supporters of this new tax to prove its economic worth, rather than on supporters of the status quo — or of tax cuts — to prove its potential negative consequences. History is on the side of those who claim that cutting taxes, or at least not raising them, is more likely to prove beneficial than to raise them.


Additionally, the EVT will have a damaging impact on jobs in Iowa, especially in our leading insurance industry, and will increase the tax burden for Iowans. This adverse impact will fall most heavily on Iowa’s four largest sectors of private employment in Iowa: Finance and Insurance, Information, Manufacturing, and Real Estate and Rental and Leasing.


Members of the U.S. Senate, who have yet to act on the American Jobs Act proposal, need to take a serious second, third, and fourth look at this “throwaway” EVT proposal buried in the many pages of verbiage of the Obama administration’s initiative. It is counter-productive to raise taxes on the accumulation of capital and the creation of jobs in a law designed to increase employment! It is unfair to create one group of businesses that cannot fall under the capital-gains rates when they sell their business while others do.


While the President may be persuaded by calls for increased taxes on “the rich” by billionaires such as Warren Buffett, Chairman and CEO of Berkshire Hathaway, he should do so, if at all, in the way least likely to negatively impact the economy and job creation. (If Buffett would take the same amount of compensation per year in the form of wages instead of capital gains, his tax rate would be significantly higher than that of his secretary, and he would not need to create pressure to interfere with ten million other Americans’ tax climate in order to feel good about his contributions to the growth of government.)[13] More than doubling the effective capital-gains tax on Iowa farm partnership sales will have very negative consequences for our economic climate, without really affecting those typical Iowans consider “the rich.”


And what if the imposition of an EVT prevents the accumulation of the capital that would have financed the next Steve Jobs, Bill Gates, or Mark Zuckerberg – entrepreneurs who have created millions of jobs in the current American economy? Would it not be better to start using Lean Six Sigma to cut out the waste in government programs so that funds can be returned to the people, used to pay down the debt, or redirected to higher priority needs?[14]


We should be encouraging, not penalizing, those who are willing to take risks to grow our economy. Patricof succinctly summarizes our thesis: “Congress can meet its revenue goals without this new tax, and investors are needed more than ever to sink capital into our economy and stay with it over the long term. Now is not the time to turn them away.”[15] Simple logic tells anyone who reads this that the EVT will do more to turn investors away than attract them. Imposition of an EVT is bad public policy.




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