New report slams Iowa tax code

New Report Gives Momentum to Iowa’s Progressive Tax Reformers

Poorest 20 percent of Iowans pay 10.9% of family income in taxes while richest 1 percent only pay 6%

A new report titled “Who Pays?  A Distributional Analysis of the Tax Systems in All 50 States” by the Institute on Taxation and Economic Policy gives new momentum to calls for progressive reforms to Iowa’s tax code because the report finds that Iowa’s poorest 20 percent pay more of their family income in taxes than the richest 1 percent, Iowa Citizens for Community Improvement Action Fund (CCI Action Fund) members said January 30.

The report’s findings throw cold water on a “flat tax” proposal by House Republicans and adds fuel to calls for an expansion of the Earned Income Tax Credit for working families, among other reforms.The report states that Iowa’s tax code has some progressive features, including:

• Income tax uses a graduated rate structure;
• Provides a refundable earned income tax credit; and
• Sales tax base excludes groceries.

But also some regressive features, including:

• Offers an income tax deduction for federal income taxes paid; and
• Completely excludes certain types of capital gains income from taxation.

“Clearly, a flat tax would make Iowa’s tax code more regressive, on the flip side expanding the Earned Income Tax Credit for working families is clearly a sensible way to bring fairness to the tax code while also stimulating economic growth,” said Megan Felt, a CCI Action Fund member from Des Moines.“The state legislature may also want to consider capping federal deductibility at $200,000 and fully taxing all types of capital gains income.”Iowa CCI Action Fund members also support combined corporate reporting – legislation that would close corporate tax loopholes on out of state companies doing business in Iowa.  The measure could raise as much as $100 million a year in new revenue while making Iowa-based businesses more competitive.“The latest findings confirm a nagging problem of inequity in Iowa’s overall tax system,” said David Osterberg, executive director of the nonpartisan Iowa Policy Project.“In fact, the report illustrates the unfairness of a new proposal at the State Capitol to give away Iowa’s surplus in $750 chunks through income-tax credits. Many Iowans who pay most of their taxes on sales and property would not benefit from the proposed income-tax credit.”FURTHER READING:Check out the earned media on this issue Iowa CCI members received in the Des Moines Register alongside our allies the Iowa Policy Project.Liberal groups cite study in criticism of Republican tax reform plans