Proposed Flat Tax: How Fair Is It?

By Steve Dinnen

The likely shift to a flat state income tax – outlined last week by Gov. Kim Reynolds – is welcome news to high-income Iowans who have until recently been burdened by the nation’s ninth-highest state tax rate. For poor Iowans, it’s just one more rung in the regressive tax ladder they climb day in, day out.

States typically apply progressive structures to taxes: The more you earn, the more you pay percentage-wise. Iowa used that model in 1934 when it first implemented taxes, which started at 1% and climbed to 5% for earnings above $4,000. Brackets and rates varied over the years, but the progressive structure prevailed. A flat tax, if it happens, scraps that in favor of 4% for rich man and poor man alike.

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Flat taxes are common. Everyone pays the same tax for a pack of cigarettes, or a gallon gasoline. Sales taxes are charged everyone at the same rate.

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Income taxes are one of the few taxes that are progressive (also called graduated). If you’re better off, you can chip in a little extra to help run the state. If you’re poor, well, we’re going to go easier on you. Or so the thinking goes.

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In an interview on WHO-TV, reporter Dave Price asked Reynolds if she thought the flat tax proposal is fair.

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“It makes us competitive,” she said. Sorry, Governor, competitive is not a synonym for fair.

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