Local Option Income Tax

Income Tax: Local Option, Local Context

Contrary to the Fox News stereotype, Democrats have, in fact, met a tax they didn't like. The rest of the Iowa press and blogosphere is missing the local context to this week's rollout a proposal for local option income taxes in Iowa.

Conservatives predictably switched on the Read My Lips alerts. But local option income taxes should be seen not as an "in addition to" tax, but rather as an "instead of" tax, an alternative to the regressive sales tax, which is deeply unpopular here in the Iowa City district of Senate Ways and Means chair Joe Bolkcom.

"I think the discussion of the local option surtax is needed," said Bolkcom. "It is the most progressive local option and is currently being used by 282 Iowa school districts (or 82 percent) quite effectively."

Bolkcom said 50 percent of any new local option income tax revenue should be required to go for across the board property tax reductions. "The discussion of allowing additional ways for cities and counties to raise revenue must be coupled with a verifiable reduction in property taxes to gain political support," he said.

"There are two issues at stake here," said Johnson County Supervisor Rod Sullivan. "First, how much revenue does local government need? The second issue is how do local governments raise this revenue? Both issues are important, but the debates need to be separate."

Some recent changes have made Iowa's sales tax less regressive than it was, but as it's structured now, it still hits people on the lower end of the income scale harder. The Fair Taxers argued in late 2007 that their plan flattened out that regressivity, and that apparently sold well in the context of a Republican caucus, but I wasn't convinced. I want to spread that wealth around a little and base our tax structure on the ability to pay, rather than the need to spend.

"It is pretty simple, really," says Sullivan: "Who should pay more, the rich or the poor? Any move toward less regressive taxes is a move in the right direction."

I remember a Johnson County Democratic convention back in the mid-90s when during a platform debate, a chant of "Tax The Rich! Tax The Rich!" broke out. We have twice rejected the local option sales tax by wide margins, in 1987 and 1999. Both times, the regressivity issue was hot--the Johnson County Democrats endorsed No and actively campaigned against it in `99. Johnson was also one of the last two counties in the state to pass the SILO school sales tax, under some duress, in 2007, and there was a vigorous inevitability vs. regressivity debate among the local Dems.

In March 1999, Iowa City was proposing a library as its biggest ticket item. With the regional retail magnet of the Coral Ridge Mall just opened, there was a big "let somebody else pay" argument in the air. Yet the sales tax lost by more than two to one.

A year and a half later, Iowa City re-proposed the library as a bond issue, with 60 percent yes required, and it passed with 67 percent. Same library, different funding mechanism, a third of the vote shifted. (Apples and oranges disclaimer: the sales tax was a special election while the bond was on the higher-turnout presidential ballot. Still, the comparison captures the mood even if the measurement is inexact.)

If that many people vote against a beloved institution like the Iowa City Public Library because of the funding mechanism, what are the chances of a less-popular item, like say a jail, passing if it's saddled with the extra burden of unpopular regressive funding?

Think through the four syllables of lo-cal op-tion. Each community deciding what type of funding, if any, is best for its own needs; the essence of democracy. "Conservatives have long argued that property taxes are too high," says Sullivan. "The only other option provided was the sales tax, which is even more regressive." The proposal simply gives communities which would prefer a more progressive tax structure that option.