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Posts tagged tax fairness

A Roadmap for Opportunity: It’s Time to Put Iowa on the Right Path

Posted October 9th, 2018 to Blog

181009-roadmap-logoIowa can unlock the potential of each individual and allow all workers to share in the fruits of their labor by making public investments in the foundations of a strong economy. Well-resourced schools, access to higher education, decent wages and protections, economic supports, clean water and renewable energy, and a cleaned-up tax system, all can pave the way to opportunities and broadly shared prosperity that Iowans want.

Unfortunately, policy choices have put us on a road that prioritizes corporate profits over worker wages and corporate tax cuts over the public investments that allow for a strong, sustainable economy. We are at a crossroads and our policy choices today and in the near future can either pave the path to economic opportunity in every corner of our state, or create roadblocks to prosperity for everyday Iowans.

Our people-first roadmap offers the way forward. It lays out the evidence-based, responsible solutions to our state’s most pressing issues, pinpointing several stops along the way that would mark progress for our state, such as:

pinCreating the workforce of our future and ensuring our children reach their potential. Iowa can and should ensure K-12 schools receive the funding they need for every child to succeed, no matter where they live. We also must restore our commitment to higher education with more state support, lower tuition, and aid to reduce student debt.

pinBoosting economic security and supports for working Iowans. Giving Iowans’ lowest wage workers a long overdue raise, ensuring workers get paid what they’re legally owed, shoring up our system of compensation for workers who get hurt on the job, and restoring worker rights to collective bargaining can ensure that all Iowa workers are getting a fair deal. Iowans also need a boost in child care assistance, which can make or break the ability of a family to work.

pinRestoring a public commitment to the health and well-being of every Iowan, particularly seniors and people living with disabilities. Reversing the privatization of Medicaid and pursuing cost savings through innovation and efficiency rather than reduced services and worker wages are critical steps to ensuring access to health care for all Iowans — now and in the future.

pinEnsuring clean water and renewable energy for a healthy, sustainable Iowa. We can and must balance the state’s need for clean and abundant water with our agricultural economy by reducing water pollution. Likewise, Iowa should restore its legacy of leadership in renewable and efficient energy in order to create a cleaner, greener state for future generations.

pinCleaning up and restoring balance to the tax code. Right now, Iowa asks the lowest income Iowans to pay a higher share of their income in state and local taxes than those with the highest incomes. We can fix this by cleaning up corporate tax loopholes that squander precious public dollars that could otherwise be invested in shared opportunity for Iowans.

Iowa is at a critical juncture. We can take the high road that leads to progress and shared prosperity, or go down a dead end. The policies in this roadmap provide a clear route to a stronger Iowa. For more detail on each stop on the roadmap, please click here.

The weekend Iowans fool themselves

Posted August 3rd, 2018 to Blog

It’s here again — the weekend when Iowans buy into some really bad political spin, but leave happy about it because they don’t pay tax on the purchase.

Today and Saturday are the dates of Iowa’s sales tax holiday, which we have noted many times — including here, here and here — is a shopping bag full of nonsense.

As IPP’s Peter Fisher noted in 2014, the third link above, “Who’s to say a retailer, with this officially sanctioned ‘holiday’ marketing, won’t bump prices by 10 percent or call off a 20 Percent Off sale that might have been in place?” Instead of revenue for schools, it’s a recipe for a retailer’s windfall.

Iowa media quite often play along, with rarely a discouraging word challenging the notion of the break, questioning whether any break actually results, and, importantly, how much it costs public services. (It was $1.6 million in its first year, 2000, and by 2015 the break was valued at $3.6 million lost to services.)

Neither does the Iowa Department of Revenue shed light on these issues, which are at least as important as a list it offers of what you can and cannot buy tax-exempt on these hallowed anti-tax days.

Certainly, the sales tax is one that disproportionately hits lower-income people harder than high-income people. The evidence is clear on that. And reducing the impact of the sales tax year-round would be a sensible step if paired with an income-tax increase affecting higher-income people — same revenue, fairer approach.

But this break goes to anyone, so those very wealthy Iowans who are the largest beneficiaries of the income-tax cuts passed in 2018 also get an extra break here.

And there we have the two largest problems with Iowa tax policy: It is inequitable, and it is based on political spin that ultimately harms the public services we depend upon.
Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

15 yards, loss of revenue

Posted May 31st, 2018 to Blog

It’s time to throw the penalty flag on Governor Kim Reynolds. Her remarks about the tax cuts she signed into law Wednesday for the wealthy fail any test of accuracy. Iowans need to know the facts.

It would be different if she had acknowledged, and made a case for:

•  massive tax cuts for the wealthiest.
•  cutting revenues, assuring continued suppression of education and opportunity, public health and safety and investments in the future of Iowa.
•  continued massive corporate tax giveaways, as business tax credits have doubled in five years.

But those were not her messages — and those messages will not be repeated here. The Governor is (1) deceiving Iowans about some policies she has adopted, and (2) ignoring likely damage to the economy from these tax cuts.

She even put off some forward strides she had suggested but abandoned during the recent legislative session. The concept of “reform” is gone, as the bill does nothing to simplify taxes for at least four years, and leaves in place a system that already was heavily skewed to benefit the wealthy.

Here are a few critical realities:

  The income tax savings to a middle class family next year are only $3 to $4 a week (according to the Department of Revenue) — while the sales tax increase will offset such savings for many.
  Millionaires, on the other hand, will see on average an $18,773 cut for the year.
  Larger tax cuts scheduled to take place in five years might not happen because they are triggered by a revenue target that will be very difficult to meet. (But count on tax-cut proponents to campaign on them.)
  Instead of adjusting taxes in a way that cuts would be paid for, this legislation will actually take $300 to $400 million a year out of the budget. Those dollars could have gone to adequately fund education or public safety or mental health care.
  The bill makes $40 million in corporate income tax cuts.
•  The bill provides an unneeded tax break for wealthy earners of “pass-through” income from business.

Meanwhile, the bill fails to reform business tax credits, which have doubled in five years, to $400 million. And it also fails to raise the standard deduction or eliminate federal deductibility, both of which the Governor had proposed but compromised away.

As reviews and promotions of the tax bill proceed, keep these points in mind. And watch for more information, because the analysis will continue on a bill developed in secret, for signing at an invitation-only ceremony.

Mike Owen is executive director of the nonpartisan Iowa Policy Project. Contact: mikeowen@iowapolicyproject.org

A poisoned process

Posted February 28th, 2018 to Blog

As early as today, a bill may be debated in the Iowa Senate to drastically slash revenue for public services — phased in at a cost of over $1 billion a year, or about one-seventh of the state’s General Fund.

The Senate bill, as does any legislation with a fiscal impact, comes with a “fiscal note.” This analysis by the Legislative Services Agency, using Department of Revenue data, was made available sometime late Tuesday. The legislation itself was introduced a week ago today, and passed out of subcommittee and full committee the following day.

The legislation is so complex that it took the state’s top fiscal analysts a week to put together their summary, which includes four pages of bullet points in addition to tables of data about various impacts. The nonpartisan analysis finds that the wealthiest individuals and most powerful corporations once again are the big winners.

The timing of the official fiscal analysis was only the latest example of cynical approach to public governing that has slapped brown paper over the windows of the gold-domed sausage factory in Des Moines.

This General Assembly was elected in 2016. It is an understatement to suggest that this legislation could easily have been developed through the 2017 legislative session or the months leading up to this session. The public who will be affected, and advocates across the political spectrum, could have weighed in, and independent fiscal analysis considered.

Many have tried to educate the public about what is at stake for Iowa — including the Iowa Fiscal Partnership, which among other activities brought in experts from Kansas last year to show what has happened there with similar tax slashing. IFP also offered a reminder in October of what real tax reform could include, and later about both open government and the folly of Kansas’ course. Last week, we warned about the fiscal cliff ahead.

Everyone knew the legislative leadership and Governor wanted to do something to cut taxes, but no specifics were available, just a couple of hints with no real context. The session opened in the second week of January, and it wasn’t until most had left the building on the second-to-last day of February that a fiscal analysis magically appeared.

With a more transparent and deliberate process, everyone — including and especially the legislators who will be voting on it — would have had a chance to get full information about its impacts.

Instead, it is being rammed through. Regardless of whether the legislation itself is good or bad, the process has poisoned it. And perhaps it has poisoned governance in Iowa for years to come.

There are elements of the commentary defending and opposing this legislation that show general agreement on two key points of what meaningful, responsible tax reform would entail. On both sides, there is recognition that:

•  removing Iowa’s costly and unusual federal tax deduction would enable a reduction of top tax rates that appear higher than they really are; and

•  corporate tax credits are out of control and costing the state millions outside the budget process, while education and human services suffer.

The process, however, has shielded from public view a clear understanding of how the specifics of this legislation would affect two principles central to good tax policy: (1) the purpose of raising adequate revenues for critical services, and (2) raising those revenues in a way that reflects ability to pay — basic fairness of taxation, where Iowa (like most states) has a system that shoves greater costs on low-income than high-income taxpayers.

It also has raised to the altar of absurdity a ridiculous image of the competitiveness of Iowa taxes, which independent business consultants’ analysis has shown to be lower than half the states and in the middle of a very large pack that differs little on the state and local business taxes governed by state policy. (chart below)

Ernst&YoungFY2016

As the process moves from the Senate to the House, these concepts of good governance need to be central to timely debate, not just fodder for editorial pages afterward.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project, and project director of the Iowa Fiscal Partnership, a joint initiative of IPP and the Child & Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

 

Red ink, inequity and pain

Posted November 14th, 2017 to Blog

UPDATED NOV. 20*

redink-capitol

To dive into an ocean of red ink for a tax cut that will do little to boost the economy is one thing. To pretend it benefits middle-class families is, at the least, cynical.

It is impossible to view either the Senate or House tax bills moving in Washington as anything but a boost to the wealthy.

Responsible analysis by respected research organizations makes this apparent. The wealthy don’t just do the best in this legislation — they are the clear focus of it.

New data released by the Institute on Taxation and Economic Policy offer several key illustrations of how the Senate Republican proposal approved last week by the Finance Committee, which includes Iowa Senator Chuck Grassley, will affect Iowans:

  • The middle 20 percent of families, people making between $59,300 and $87,080 (average $72,400) receive only 12 percent of the overall tax cut in 2019. Meanwhile, the top 20 percent receive more than half — 62 percent.
  • In 2019, the top 1 percent has a larger overall tax cut than the bottom 60 percent, $483.1 million (average $32,200) to $407.9 million (average $450).
  • In 2027, as the small benefits at the middle phase out and structural changes at the top are made permanent, the bottom three-fifths of Iowa taxpayers will see $58.7 million in tax increases averaging $60, while the top 1 percent will keep an average $4,770 tax cut at a cost to the treasury of $67.7 million.

Those who are promoting this bill should at least have the honesty to call it what it is: a new handout to the wealthy — one that everyone will pay for, to the tune of $1.5 trillion over 10 years, and an almost certain loss of critical services that benefit all.

* Note: The original post from Nov. 14 has been updated with figures from the Institute on Taxation and Economic Policy analysis of the bill passed by the Senate Finance Committee.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

 

Against tax spin: Wealthiest benefit

​IFP News

Against the spin: Wealthy benefit most from House plan
In Iowa and nationwide, federal tax proposal skewed to benefit millionaires

 

IOWA CITY, Iowa (Nov. 6, 2017) — New national and state-level analysis shows the wealthiest taxpayers are the biggest beneficiaries of the House tax reform proposal, exposing exaggerations of middle-income benefits in a package that could threaten critical services to low- and moderate-income families.

The Institute on Taxation and Economic Policy (ITEP — itep.org) released its analysis today. Its national findings follow estimates by Congress’ nonpartisan Joint Committee on Taxation late last week that also show benefits of the plan are heavily skewed to the wealthy.

Among ITEP’s findings for Iowa:

  • In 2018, the middle 20 percent of Iowa taxpayers will see an average tax cut of $790, compared to a $36,100 tax cut for the top 1 percent, a benefit 46 times higher for the very rich, whose annual income averages $1.2 million.
  • The inequity grows by 2027, as the average middle-income cut falls to $340 (less than half of the 2018 figure) while the very rich get a $48,520 tax cut — a third greater than in 2018, and a benefit 143 times greater than the middle-income average. (graph below)
  • The top 20 percent take 61 percent of the tax benefit in 2018, and 69 percent of the tax benefit in 2027.
Tax Cuts Skewed to the Wealthy in House Plan, 2018 and 2017
171106-ITEP-taxreform
Source: Institute on Taxation and Economic Policy
 
“So much for boosting the middle class. The rich in Iowa do far better than middle and lower-income taxpayers in our state under the House tax plan,” said Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP), part of the Iowa Fiscal Partnership with the Child & Family Policy Center (CFPC) in Des Moines.

CFPC interim director Anne Discher agreed.

“While focusing rightly on who actually benefits from this legislation — and who does not — we should not miss the impact on services and the difficult choices that will be forced upon states by federal tax cuts,” Discher said. The tax package will cost an estimated $1.5 trillion over 10 years.

Discher agreed with ITEP that low- and middle- class families likely will pay for these tax cuts for the wealthiest through reduced investments in education, health care, infrastructure, scientific research, environmental protection, and other priorities.

The ITEP analysis examines the difference in tax benefits at various incomes both in 2018 and 2027.

Fisher noted the ITEP analysis shows the legislation does not mean tax cuts for everyone, and in some cases means tax increases. Five percent of all Iowa taxpayers would see a tax hike in 2018, rising to 13 percent in 2027, according to ITEP.

“This plan benefits the wealthy immediately, but disguises even greater benefits and disparities that will become apparent well after the next election,” said Mike Owen, executive director of IPP.

“What might appear to some to be a substantial benefit at the middle next year — an average tax cut of $790 — will vanish by more than half in 2027, as even greater benefits to the very wealthy are phased in over the decade. The benefit at the top 1 percent, on average, is projected to grow from a $36,100 tax cut in 2018 to $48,520 in 2027.”
The ITEP analysis shows, in fact, that the value of the average tax benefit drops over the nine years for every income group in Iowa except the very top 1 percent. But this bias to the very rich would take place long after the 2018 and 2020 elections when policy makers might have to defend them.

“A closer look at the details of this tax plan indicates that lawmakers are most serious about ensuring that they lower tax bills for the highest-earning households,” said Alan Essig, executive director of the Institute on Taxation and Economic Policy.

ITEP and others have noted specific disparities in the treatment of various taxpayers under the proposed bill.

For example, after five years, the bill would eliminate a $300 non-child dependent credit that benefits low- and moderate-income families while reducing and eventually eliminating the estate tax, which benefits only the wealthiest two-tenths of 1 percent of estates in Iowa and the nation.

“The estate tax assures at least some taxation of extremely large amounts of income that otherwise are never taxed,” Owen said. “The estate tax already is effectively very low for even enormous estates — the first $5.5 million of an individual’s estate, or $11 million of a couple’s estate, is exempt from tax. And no family inheriting an estate of less than those amounts faces any estate tax at all, so the scare tactics that are used with small businesses and farm families are very misleading.”

The Iowa Fiscal Partnership is a joint public policy analysis initiative of the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org.

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Some bad ideas never die

Posted April 24th, 2013 to Blog
Peter Fisher

Peter Fisher

The Iowa House today proved that bipartisanship is no guarantor of good policy. On a vote of 87-9, the House approved HF 641, which would authorize a new and wasteful incentive program that would divert money from the state general fund to support hotel and retail projects in cities. So we will be taking money that should be supporting state investments in education, health, the environment, public safety, and other services, and using it to subsidize hotel developers and retail strip malls. All in the name of “economic development.”

Cities already have more than enough ability to divert taxes to development projects through property tax TIFs and abatements. There is no need for additional diversions of revenue from other jurisdictions.

The House bill would authorize any city or county to establish “Reinvestment Districts.” From the date of establishment onward for the next 25 years, 4 cents of the 6-cent statewide sales tax, and all 5 cents of the state hotel-motel tax, from all “new” sales or room rentals would be diverted from the state general fund to the city for use in the district. What uses? Pretty much anything; any building, public or private, could qualify for a subsidy, and there is no limit on how much of the cost of a project can be subsidized.

“New sales” are sales from a business that first got a state sales-tax permit (or hotel-motel tax permit) after the date the district was established. Given the high rate of turnover among retail businesses, it is not hard to imagine a scenario in which most of the sales taxes in a district are diverted from the state general fund even though there has been little additional economic activity, or even decline. All that is needed is that old businesses are replaced by new ones, even if that means replacing an Applebees with a pawn shop.

Why will a city ever again be content to finance commercial redevelopment on their own, or with property tax TIFs alone? Why will a developer ever again finance a project entirely from private sources – try to remember, if you can, when that was the norm – when he or she can just ask the city to get the money from the state?

More importantly, what will become of market standards? While every legislator who voted for the bill surely believes in free markets and private enterprise, this measure undermines markets. There was a time, before the incentive wars got out of hand, when a project had to stand on its own – there had to be a sufficient market to support it, and banks had to be convinced that revenues would be sufficient to repay the loans. No more. Now local government officials are determined to force development to happen when it can’t stand on its own, creating oversupply that hurts existing businesses. Or the private sector happily rakes in all the new incentive cash to do something it would have done anyway. Those are really the only two alternatives for a local market activity: either market conditions support it and it can be financed privately, or the market can’t support it, and the city uses taxpayer money to force overbuilding.

We can hope that this bill gets careful scrutiny before it goes any further.

Posted by Peter Fisher, Research Director


Fisher: Tax hike not too much to ask of rich

Posted April 20th, 2013 to IFP in the News, Op-eds

Peter FisherBy Peter Fisher, Iowa Policy Project

The Great Recession officially ended almost four years ago. You would know that if you’re at the top of the economic heap, because corporate profits have rebounded very nicely, along with stock prices and dividends. But for millions of Americans recovery remains elusive. Jobs are scarce, wages stagnant.

This pattern of prosperity at the top and declining or stagnant living standards for the rest is not new. Over the past 40 years, our economy has been riding on healthy gains in productivity; American workers are producing 80 percent more per hour than they did in 1973.

But unlike previous periods, the gains from increased productivity have not been shared with working people. Real wages are only 10 percent higher than they were 40 years ago. From 1973 until the start of the Great Recession, about two-thirds of the income gains accrued to the top 1 percent. During the first two years of recovery, the top 1 percent not only captured all of the gain in income, but took some from the other 99 percent of us as well.

It is not asking too much of those who have reaped the benefits of our economy to contribute a little more to help pay for the education system and the public infrastructure that have supported our economy and that are needed to improve the prospects of working people. The so called “fiscal cliff” bargain in January took a tiny step toward addressing this problem by restoring tax rates on the top 0.7 percent of taxpayers to near the level that prevailed during the economic boom of the 1990s.

But even this weak measure affecting less than 1 percent seems to be too much for some. Steve Hammes complained on these pages (“When Taxes Go Up on Wealthy, Everyone Pays,” April 4) that taxing high earners costs everyone. He dismisses as a “populist attitude” the idea that the rich have reaped most of the economic gains. This is not an attitude; it is an indisputable fact.

Hammes asserts that taxing the rich will force them to raise the prices of things we buy, so the general public will end up paying their tax bills. This is nonsense.

Hammes seems to think that business owners have found a way to repeal the law of supply and demand. That might be their dream, but any business owner would be very surprised to learn that raising prices has no consequences. Basic economics tells us that people buy less when the price rises and that business owners will choose the same profit-maximizing price regardless of how much of that profit gets taxed.

Hammes also perpetuates the myth that a higher income tax on the rich is really a tax on business income. This is wrong for two reasons. First, a tax increase for the top 1 percent hits only households with total incomes of roughly $500,000 or more. Fewer than 3 percent of small businesses would be affected. Second, for households with incomes of $1 million or more, only 2.5 percent comes from operating a business. The rich get most of their income from capital gains, rent, interest and dividends — from owning assets, not from running a business.

The average car dealership owner, grocery store owner or insurance agent is not, as Hammes claims, among those who would pay more under the fiscal cliff deal or other proposals affecting those with incomes over $500,000. For that very small fraction of business owners who would pay higher taxes, let’s be clear: We are asking them to pay more because they are rich and can afford to.

There was a time from the end of World War II to about 1970 when economic growth was fueled by middle class prosperity. If we are to find a path back to shared prosperity, a good place to start is by taxing some of the income gains that have been captured overwhelmingly by the richest among us and using those funds to invest in our workforce and our economy in a way that benefits all of us.

 

Peter S. Fisher is research director of the Iowa Policy Project in Iowa City. He is professor emeritus of urban and regional planning at the University of Iowa.

This guest opinion ran in the April 20, 2013, Des Moines Register.

Flat tax plan legalizes cheating on Iowa taxes

Posted March 11th, 2013 to Blog
Peter Fisher

Peter Fisher

The Iowa House of Representatives will soon take up a bill that would legalize cheating on your Iowa income taxes. While that isn’t the intent, it will certainly be the effect, at least for anyone who has an accountant or who can figure out how to do it on their own.

Officially, the bill is HF3, which would create an alternative flat tax of 4.5 percent. The taxpayer could choose between the current system and the flat rate. If you choose the flat rate, you get a standard deduction but cannot deduct federal income taxes, itemize deductions, or take any credits. But if you currently pay a higher rate than 4.5 percent, and don’t have a lot of deductions or federal income taxes, you might come out ahead picking the alternative flat rate.

To see how this opens the door to massive tax avoidance, you need to understand one important feature of Iowa’s income tax: federal deductibility.

Let’s say you earn $75,000 in Iowa adjusted gross income (AGI) for 2013 and you had $5,000 in federal income taxes deducted from your paycheck during the year. You can deduct the $5,000 from your AGI, leaving you with that much less income to pay tax on. But if you also got a refund check from the federal government in 2013 (because you had too much withheld during 2012, and deducted too much federal tax on your 2012 Iowa return), you have to add that back to your taxable income. This ensures that, over the years, you always end up deducting exactly what you actually paid in federal taxes.

HF3 changes the rules — and here’s how any taxpayer could game the system under HF3. Let’s call it, “Follow the 20,000.”

•  First stop, your W-4. During 2013 you file a W-4 to have five times as much federal income taxes withheld from your paycheck as you really need to. (Or, if you are self-employed, pay quarterly estimated taxes five times what is required.) So when you go to file your 2013 Iowa tax in April 2014, you can deduct $25,000 from your income instead of $5,000. This lowers your Iowa tax bill considerably. If you were in the top 8.98 percent bracket, the extra $20,000 deduction would save you $1,796 on your state income tax. So you choose to file under the current system instead of using the flat rate.

•  Why that’s a bad idea now. Under the current system, your strategy would bite you in the back the next year, because now the $20,000 excess withheld in 2013 comes back as a refund check in 2014. The $20,000 refund check from the feds in 2014 would have to be added back to your 2014 income. You have to pay state tax on it.

•  Flat tax changes the game. If you can take the alternative flat tax for 2014, you will see a huge break. While you would not be able to deduct federal taxes withheld during 2014 under that scheme, you don’t have to add back the $20,000 refund check either.

So for 2014, you pick the flat tax alternative, and pay 4.5 percent on “all” your income — but in the state’s eyes, it’s like that $20,000 never existed.

•  An endless payoff. By doing this, you magically avoid ever paying Iowa income taxes on that $20,000. You didn’t pay tax on it the year it was withheld, because that year you filed the old way and took federal deductibility. And you didn’t pay tax on it the next year, either, because that year you chose the flat tax alternative and didn’t have to add in the $20,000 refund check.

You could argue that if the Legislature makes it legal, it can’t be called cheating. But it sure smells like it. That’s a “tax avoidance” strategy useful only to those in the higher tax brackets.

And that strategy can be avoided if HF3 gets no further in the Iowa House.

Posted by Peter Fisher, Research Director


How to make Iowa’s tax system more unfair

Posted February 5th, 2013 to Blog
David Osterberg

David Osterberg

How odd that a new proposal to make Iowa’s tax system more regressive and unfair comes out just when new evidence shows it already is unfair. HF3 would make the Iowa income tax rate flat where it needs to reflect ability to pay. Since higher income people pay more in income tax, and because they are expected to pay a greater percentage as their income rises, moving to a flat or flatter income tax is a reward to them. It does not help low- and moderate-income people.

As shown in the recent “Who Pays?” report by the Institute on Taxation and Economic Policy (ITEP), the poorest pay the highest portion of their income in taxes. (See graph.) The sales tax is much steeper as a share of income from low-income Iowans than it is from high-income Iowans, and the property tax is marginally more expensive to low-income people as a share of income than it is to those with high incomes. The income tax is the only progressive element of Iowa’s state and local tax system.

graph of Who Pays Iowa taxesTo flatten the only progressive feature of Iowa’s tax system would make the overall tax system more regressive. That would be the inevitable effect of HF3.

The problem with Iowa’s tax system is not that it’s too progressive. In fact, it is regressive — taking a larger share of the income of people at low incomes and middle incomes than of people at the top. HF3 would compound this.

Posted by David Osterberg, Executive Director