Common Good Iowa

Tax swap — best kept off the table

Posted on 01/09/2021 at 04:23 PM by Mike Owen

It was good news this week to learn Governor Kim Reynolds would not pursue her tax-swap plan this session, trading a sales-tax increase for property-tax and income-tax cuts.

It would be better news if she were to take it off the table completely, for at least two reasons.

One, it is never responsible to promote an inequitable, regressive tax increase (sales tax) with the lure of funding long-neglected priorities — in this case a clean environment, recreational opportunity and mental health services.

Second, her plan never honored what the voters requested in a 2010 when they approved a constitutional amendment establishing a Natural Resources and Outdoor Recreation Trust Fund (known widely as IWILL) with funding from a three-eighths-cent increase in the state sales tax.

The Governor, as we have established, broke trust with voters, shortchanging the actual priorities Iowa voters supported in 2010 based on a state law outlining how the trust fund would be used if approved. Not only would the total pie for those priorities be reduced, but program allocations would change, and more than half of the funding permitted would not have been new money as the law directed.

Gov's IWILL diversion planSo from both equity and revenue/funding standpoints, the Governor's decision — not to push for her previously devised package of tax increases and tax cuts — is welcome news. 

But not all the news from the Governor about taxes was positive. Also during her interview with Statehouse reporters, she indicated she would “move forward with triggers” that were part of a massive 2018 tax cut bill. The effect of her proposal would be to ensure that additional income tax cuts take place, or occur sooner. Those breaks, as we have shown, primarily benefit high-income Iowans and undermine the ability of the state to finance education, health, and other key services to Iowans.

Governor Reynolds disclosed those parts of her tax plans in a pre-session forum with news reporters on Thursday, but is holding a lot of details in her 2021 agenda and budget for her Condition of the State address Tuesday night. 

Iowa, like many states, has a tax system skewed to benefit the wealthy vs. those at low- and middle incomes. Such inequity has been compounded over the past two decades by a discredited, but persistent, anti-tax refrain that obscures the demonstrated competitive standing of business taxes in Iowa vs. those in other states.

Iowa taxes are not fair. Those with the lowest incomes pay the highest percent of their income in taxes. If the Governor is interested in true, responsible tax reform, any new proposals should work to dismantle those inequities.

 

Mike Owen is deputy director of Common Good Iowa. Contact: mowen@commongoodiowa.org

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