Researchers with the Iowa Fiscal Partnership say Iowa cities should be given more options to raise tax revenue. The group’s Beth Pearson says Iowa cities rely more heavily on property taxes than cities in other states, and it would make sense to allow cities in Iowa to collect a local option income tax.
"It would just be a surcharge that would piggyback on top of the state income tax just in the same way that the local option sales tax piggybacks on top of the state sales tax," she says, "and it would allow cities to raise money in a way that is responsive and sensitive to the incomes of its residents so that it’s fair and not disproportionately impacting low income households."
Pearson says cities in other states which are allowed to collect local option income taxes reduce their reliable on property tax revenue significantly. "States where cities can use this option tend to have 24 percent of their (tax) revenues coming from property taxes, compared to over 40 percent in Iowa and 32 percent nationwide," Pearson says.
Pearson released a report entitled "City Revenue and Smart Growth" this morning, arguing a "heavy reliance on property taxes skews city revenues toward a less fair form of financing than one that taxes higher-income people at a higher rate than lower-income people.
See the report at the Iowa Fiscal Partnership’s website .