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.

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.

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.

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

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

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