Starting this year at the behest of Gov. Kim Reynolds, the Legislature’s latest attempt to lower taxes will take effect. Instead of the graduated tax system currently in place, we’re going to have a flat rate tax that will be lower than the current tax structure’s average rate.
The stated justification as best I can tell is that it’s going to make Iowa more attractive to outsiders from other states to come and live. At the present time there are nine states in the United States that do not have personal income taxes (population growth rates in parenthesis): Alaska (36), Florida (8), Nevada (5), New Hampshire (30), South Dakota (16), Tennessee (17), Texas (3), Washington (7), and Wyoming (44). With the exception of South Dakota, there is not a Midwest or upper Midwest state in the bunch.
Note the fastest growing states are warm or coastal. People are moving to those states for many reasons, but I submit a lack of state income tax is way down the list. It’s not because of lower taxes, but because of higher temperatures and quality of life.
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Another stated justification is that lower taxes on people and businesses attract business to Iowa. Does this work? As far as attracting people and businesses because of a lower tax structure, economic literature is replete with research indicating firms and people have taxes way down the list of things that attract them to any state. Proximity to markets, both resource markets and product markets, ran very high on the business list. And as I mentioned, quality of life is highly important to people, especially our younger generation.
It’s hard not to think that the reasons given by our political leaders for lower taxes is a façade. The reality is, it’s just an opportunity to give a tax break to the Republican rich. It’s time perhaps to once again remind people that as much as the Republicans try and tell us taxes are wasted, it’s simply not true.
We all want public goods and services provided by government. At the local level, we want police protection. We want fire protection. We want public schools. These need to be paid for and the way we pay for these is with taxes, although we occasionally do have user fees, but those are relatively small. In addition, at the state and national level, we want things like good roads, parks, national defense, and public assistance for those who need help. We forget all too often that these public goods benefit some group someplace. If we eliminate or substantially cut taxes, we will eliminate services provided by government, and if you don’t think that affects you, you need to take a look at all the things that you get that are provided by federal, state and local governments.
Economists have said for years there’s no such thing as a free lunch, and we can extend that by saying there’s no such thing as free public services. They need to be paid for and the way we pay for them is through taxes. Now, don’t get me wrong. I’m no different than anybody else. I don’t like to pay taxes either. I also don’t like to have to pay for milk, but I go to the grocery store and buy it. I’d like to get that for nothing and not have to pay for it. I don’t like to pay for hamburgers. I wish I could get them for free. That’s not the way private goods work. It’s also not the way public goods work either. We need to remind ourselves regularly that if we want these things they have to be paid for.
Not to be too cynical about our elected officials, but in addition to helping the rich, is the tax cut a way of forcing the state to reduce expenditures? We are required to have a balanced budget so maybe this is a Republican backdoor way of reducing government. If so, a lot of people will be paying dearly for this tax cut.
