Iowa's state and local tax system favors the highest-income families in the state — a fairness problem compounded by the net effect of two decades of policy changes. News release, backgrounder.

Lower-income non-elderly households in Iowa pay a disproportionate share of their income in state and local taxes. New data from the Institute on Taxation and Economic Policy (ITEP) establish a continuing problem of fairness in Iowa’s tax code: Those who earn less income can expect to pay a larger share of it in state and local taxes than those who make more. For the 60 percent of non-elderly taxpayers in Iowa who earn less than $50,000, the combination of sales and excise taxes, property taxes and income taxes together amount to well over 10 percent of total income. By contrast, the top 5 percent of taxpayers, earning over $127,000, on average pay about 7.6 percent or less of their income in state and local taxes.

Each of the three major taxes that make up Iowa’s state and local tax system has a different impact when considered alone, but must be considered together in order to evaluate the total effect of Iowa’s tax structure. Further, an accurate assessment of that impact must consider the net effect after federal tax deductions for those state and local taxes — the “federal deduction offset” included in Figure 1 and Table 1.

Figure 1. Iowa’s State & Local Taxes Favor High-Income Earners