September 15, 2014

Iowa tax climate ranks low, 40th out of 50 states

Iowa’s tax climate ranks among the worst in the nation according to a new report released by the “Future of Iowa Foundation.” The group is a subsidiary of the Iowa Taxpayers Association and its report ranks Iowa’s overall tax system 40th out of the 50 states.

Iowa Taxpayers Association president Dustin Blythe says members of his organization will meet August 19 to start a conversation about how to improve that ranking.

“Trying to come up with a broad-based tax reform agenda,” Blythe says.

One reaon Iowa’s overall tax system ranks so low is because the state’s sales tax is so high. A two percent sales tax was first imposed in Iowa in 1934. It has tripled since then, to six percent.

“What we actually have subject to tax from what we had subject to tax in 1970 to now has almost gone from 70 percent down to 30,” Blythe says, “which means your sales tax rate has to go up if you’re taxing (fewer and fewer) items.”

The group’s report also says the tax has to go up because there are fewer people in Iowa — a net loss of more than 60,000 people over the last 20 years. In addition, Iowa has the nation’s highest corporate income tax and the state’s top personal income tax rate is nearly nine percent.

“Obviously the high rates, at least on paper, give us the appearance that we’re uncompetitve on a national scale,” Blythe says.

Iowans are able to deduct their federal income tax bill from their income before calculating how much they owe in state income taxes. It makes Iowa’s income taxes appear far higher. Republicans, though, have resisted efforts to get rid of that deduction, which is only allowed in five other states, arging it would be a tax on a tax. Blythe says his group is open to the idea of getting rid of that deduction, but only if the move is part of “comprehensive” reform of the state’s entire tax system.