Published February 19, 2020, by The Des Moines Register
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Iowa is long overdue to reform taxes to benefit Iowa working families, and Gov. Kim Reynolds’ plan to increase sales tax, cut income tax, and drive down investments in public services is exactly the wrong prescription.
Already, the 2018 income-tax cuts being phased in shower most of their benefits on those at the top; the governor would compound this imbalance.
Reynolds and anti-tax advocates regularly run down Iowa's competitiveness using debunked analysis that fits their political agenda. Instead, they could be boosting the state’s economic prospects by promoting investments in education and other services that would better serve the majority of Iowans.
For the real story on so-called tax competitiveness, we can look to accounting firms such as Ernst & Young. They get away from the contrived “tax climate” reports that are used to justify tax cuts for the wealthy and big business. The firm simply calculates every year what states and their localities charge in business taxes as a share of the economy.
Iowa repeatedly ranks in the low-tax half — which contradicts the anti-tax crusaders. Even more important, Ernst & Young’s report shows about half of the states are pretty tightly bunched. The differences among states just aren't that great.
Anderson Economic Group, another accounting firm, also ranks states on business taxes — with similar results. Iowa again is a relatively low-tax state.
Broader analysis of state and local tax systems finds most are “regressive,” which means they tax lower-income residents at a higher rate than they do higher-income people.
In Iowa, the only counterpoint to this unfairness is the income tax. It is the only piece of the puzzle that taxes higher-income people at a higher rate. The sharply regressive sales tax is chiefly responsible for the overall inequity, though property tax contributes as well.
Quite simply, Reynolds' approach would compound this problem, just as those of her predecessors and their legislative accomplices have done since 1983, when new Gov. Terry Branstad made a sales-tax increase his first initiative after campaigning against tax increases.
If that were not enough, and it should be, her plan terribly distorts the voters’ will in authorizing the creation of an environmental and outdoor recreation trust to be funded by the next three-eighths-cent sales tax increase. Her insistence on pairing an income tax cut with the trust funding was never part of the deal voters authorized.
She also wants to change the formula for how the three-eighths of a cent is to be spent, and violates the understanding that this was to be new money and not just a replacement for some of what is already being spent on water quality and outdoor recreation.
The only growth we can expect with this plan are growing inequities, growing deficiencies in funding for education and other services, and growing inability of public policy to stem the environmental degradation being caused by unsustainable, unregulated farm practices.