Exemptions To Sales Tax As Prevalent As Hogs In Iowa

Prairie DogFrom the February 2022 issue of  The Prairie Progressive, Iowa’s oldest progressive newsletter. The PP is  funded entirely by reader subscription, available only in hard copy for $15/yr.  Send check to PP, Box 1945, Iowa City 52244. Click here for archived issues. Published with permission.

by Marty Ryan

A lot of ink has been used in covering Governor Kim Reynolds’ “4% flat tax on income” proposal. The Iowa House has introduced a similar bill, and the Senate has its own bill, but it’s more complicated. The word thrown around about all proposals is “fair.” There is nothing fair about any of the measures.

Before you begin to envision that everyone will pay the same percentage of income tax, let me break it to you that the word “rate” is missing from the quote above. That means that deductions galore are still available to get that seven-figure gross income down to around four figures before you determine how much tax you owe the state, if any.

Politically, the income tax discussion is a distraction. Lurking in the background is a plan to increase the sales tax rate. As a matter of fact, a sales tax proposal is one segment of the Senate plan. The Senate bill would get rid of all current local option sales taxes and raise the state sales tax rate a percentage to 7%. Some of the revenue from sales tax would be redistributed to counties. The eventual goal is to make Iowa the ninth state that does not tax income, obtaining revenue from other sources, such as the sales tax.

Some Iowa legislators have this idea that if there was no state income tax an influx of new
residents will move to our state. If that’s the case, wouldn’t South Dakota and Alaska have a larger increase in population than Iowa? The 2020 census shows that the population of South Dakota, a state that has not had income tax since 1943, grew at a rate of 1.17%, while Iowa’s population grew by 4.7%. Alaska’s population was static. The solution to having people move to Iowa is not going to be found in tax-shuffling legislation. Iowa needs  to create seashores and mountains to attract new residents. After all, current legislators have proven their creative skills in developing unbelievable examples.

There are 107 subsections in the Iowa Code under the title “Exemptions” as it pertains to the Iowa sales tax. That doesn’t mean there are 107 exemptions; it means only that there
are that many subsections. Several subsections have been further divided into many subparagraphs and sub-sentences, making exemptions to sales tax as prevalent as the number of hogs in Iowa.

Most sales tax exemptions are for the purchase of agricultural supplies, accessories, and my favorite phrase – ‘implements of husbandry.’ Following closely behind are exemptions for manufacturers, energy producers, airplanes and airplane parts and services, Google and Facebook, insurance industry purchases, commercial enterprises, and retailers.

Newspapers, and almost everything used in the process of printing a newspaper, such as ink, are also exempt from taxes. Also, you have never noticed a line item on a lawyer’s bill that says, “sales tax.” Reading through the list of exemptions, you can see that many lobbyists were successful in their quest to represent their clients’ ‘special interests.’

What you don’t see listed in the ten pages of exemptions from sales tax are many items purchased by people living in poverty. Those items may include diapers, laundry detergent, cleaning supplies and paper towels, toilet tissue, women’s hygiene
products, and clothing (except for a weekend in August where clothing under the price of $100 is exempt). An argument against making these necessities tax exempt is that everyone uses them. That’s the point.

A family living in poverty spends a higher percentage of their income on those taxable necessities. Because the “average age of farmers in Iowa is 57.1 years old,” and since there
are “four times more farmers over the age of 65 than under the age of 35,” the odds of farmers needing diapers is slim. Corporations don’t use laundry detergent. Google does
not purchase feminine hygiene products. Newspapers are not known to buy clothing.

I anticipate the sales tax provision in the Senate version is a bargaining chip. Although the Senate’s income tax bill contains a lower rate than 4%, I believe the Senate’s proposed
rate will drop off and the House will accept the Senate’s sales tax idea – especially since the last six months of 2021 experienced a ten percent increase in sales tax revenue.

The Iowa Senate, Iowa House, and the governor (what a few legislators believe to be the three branches of government) have taken to hold these truths to be self-evident: The rich get richer, and the poor get poorer. And, as Leona Helmsley’s housekeeper overheard her philosophy on wealthy people, “We don’t pay taxes. Only the little people pay taxes.”

—Marty Ryan is one of the little people.

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