Expert: Flat tax rate proposal could increase taxes for poorer Iowans

Published: Jan. 12, 2022 at 8:20 PM CST
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CEDAR RAPIDS, Iowa (KCRG) - An economic researcher at Iowa State University said people with less money usually pay more in tax systems where a flat tax is used.

The Republican governor announced her plan to propose a flat tax rate at 4% in her Condition of the State Address on Tuesday night. Gov. Reynolds also said she had plans to decrease the amount of time an Iowan can earn unemployment benefits among a number of different issues.

Under Gov. Reynold’s flat tax proposal, Iowa would collect billions less in revenue from taxpayers, which would likely mean fewer dollars for services and programs. A flat tax could also increase taxes for some Iowans, especially, for those who make the least amount of money.

Dave Swenson, who is an economic researcher at Iowa State University, said the average taxpayer in 2019 paid a rate of 3.7%, that’s lower than the proposed flat rate at 4%.

He also said the state currently uses a system where people who make more money generally pay a higher percentage. This means a potential 4% tax across all income levels will bring more significant tax relief to Iowans making more money.

“When you reduce the progressivity of the tax system, you lower the taxes paid by the well to do, and you generally increase taxes paid by the less well to do,” he said.

Specific details to the flat rate tax haven’t been released, as of Wednesday night. Alex Murphy, who is a spokesperson with the Governor’s Office, said the bill was provided to the nonpartisan legislative services agency Tuesday night. He said it’s premature to comment on the bill’s specifics.

Governor Kim Reynolds also plans to ask the legislature to lower the amount of time somebody unemployed can get benefits from the state. Currently, Iowans can receive unemployment benefits for six months. Gov. Reynolds wants to give Iowans four months to find a new job before benefits stop.

Swenson said only 16% of people who are unemployed in Iowa, currently, are eligible and receiving unemployment benefits. He said the proposal from the Governor would hurt workers and help businesses by lowering their payments to unemployment insurance.

“The logic of this just doesn’t make sense other than the opportunity to pass a pro-business piece of legislation that’s harmful to workers and a little bit more beneficial to businesses,” Swenson said. “Because it lowers the unemployment insurance they are required to make [payment on].”

The spokesperson for the Governor said these unemployment benefits are meant to be short-term benefits. He also added the state has set up a new bureau to focus on re-employment and launched a one-on-one career coaching program to help those find a job.

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