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Regressive sales tax: Does anyone care?

Local-option sales taxes are widely seen by voters as the most palatable way for local government to raise revenue.

Adding a penny to the sales tax seems like a small thing, it pulls in revenue from people outside the city and county, and it seems fair, said David Swenson, a tax expert and economist at Iowa State University.

“A lot of people out there escape taxes, whether it’s income taxes or property taxes,” Swenson said. “But they can’t escape the sales tax.”

But the local-option sales tax voters will either approve or reject on March 3 will have a disproportionate impact on the poor.

No, the numbers aren’t startling. The poorest Cedar Rapidians spend an estimated 4.2 percent of their income on sales tax already, and if voters approve the new one, the same folks will spend roughly 5 percent of their income on the tax.

That’s an extra $160 per year for households that earn $24,500 per year, estimates Beth Pearson, a researcher at the Iowa Policy Project, a liberal think tank based in Mount Vernon.


Filed under: Cedar Rapids City Council, County Government, Flood, , , ,

2 Responses

  1. aaron says:

    Sales tax absolutely penalizes those who spend a higher proportion of their income. So does the way we tax apartment buildings — people don’t see it, but landlords have to pass their higher tax rates through to the tenants.
    Property taxes put a higher fixed cost on every employer with a physical presence, and on every retailer.
    There is no perfect tax structure, particularly not when we are in a time crunch. If our governments are forced to make long term decisions based on budget shortfalls while they wait for new taxes to come into effect we stand to lose a lot of ground.
    I’m certain that there are other types of tax that would make some people happier, but it looks to me like we have very few viable options.

  2. Dave says:

    Aaron’s comments are very accurate as far as I can see. Probably the greatest redeeming factor about local option sales taxes is that various ‘necessities’ like groceries and home utilities are exempt.

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