Will Iowa Statehouse Santas Eliminate Income Tax?

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The exterior of the Iowa State Capitol building can be seen in Des Moines on Tuesday, June 8, 2021. (Andy Abeyta / The Gazette)

Our Statehouse Santas talks about eliminating personal and corporate income taxes from the state. Ho, ho, ho, how will it be?

“There’s no reason we should settle for mediocrity,” Sen. Dan Dawson, R-Council Bluffs and chair of the Ways and Means Committee, told the Iowa Taxpayers Association the last week. “Simplicity, transparency, competitiveness, this is our defining marker that we are putting forward. This is what we want to do when we reform our tax system, so the ultimate goal is to eliminate income tax.

As you order, it’s like asking Santa for a Lexus with a big red bow. Personal and corporate income tax is expected to bring in over $ 4.5 billion in fiscal 2022, more than half of the revenue in our $ 8 billion general fund budget, according to the non-partisan legislative services agency. Sales and use taxes are estimated at $ 2.7 billion, or one-third of general fund revenue.

So if the idea is to replace income taxes with sales taxes, it’s going to require a big increase in sales tax. It’s one of those little things Republicans have yet to discuss.

The state ended fiscal 2021 in June with a $ 1 billion surplus, fueled in part by federal pandemic assistance. There is also $ 1 billion in a taxpayer assistance fund.

But these resources are limited. Federal aid and surpluses will disappear. But tax cuts, as we’ve learned, last forever. We have cut taxes by billions of dollars and yet we are still not “competitive”.

GOP lawmakers have often argued that South Dakota is an example we should emulate. South Dakota has no corporate or personal income tax. It is considered a tax haven by Republicans in Iowa.

But would the South Dakota model really fit?

South Dakota’s general fund budget for 2021 was $ 1.7 billion, with 60% of revenue coming from sales taxes. South Dakota’s sales tax is heavier. Groceries, for example, are subject to sales tax, unlike Iowa.

South Dakota’s overall per capita tax burden is among the lowest in the country, but it is also among the most regressive. According to the Institute of Taxation and Economic Policy, the poorest 20 percent of South Dakotas pay more than 11 percent of their income in taxes. Compare that to the top 1%, who pay less than 2% of their income.

To build its economy, South Dakota has ravaged financial regulations, such as limiting interest rates, to attract credit card companies and financial services companies. So now South Dakota’s lax rules apply to tens of millions of credit card customers across the country. It has also become a tax haven, much like the flat, frozen Cayman Islands.

South Dakota has a population of less than 900,000. Its K-12 public school districts educate 140,000 students, compared to 470,000 in Iowa. Its state universities have 33,000 students, compared to 70,000 at public universities in Iowa.

Can Iowa fund education, let alone other priorities, losing $ 4.5 billion in revenue?

While this may be the “ultimate goal” of the GOP, it is unlikely to happen soon. There will be more tax cuts next year. But eliminating income taxes is only affordable as a topic of discussion.

Unless, like Santa Claus, Republicans choose magic over math.

(319) 398-8262; todd.dorman@thegazette.com


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