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Cedar Valley Voices: When families make more, increase taxes faster
by Mike Johnson · Op-Ed · April 03, 2024
After listening to some of Iowa’s GOP politicians you’d think that they believe the purpose of government is to cut taxes.
Their latest fiscal unicorn is a so-called “flat tax.”
The flat tax was a fad back in the early 1980s, but like a lot of GOP zombie ideas it has come back from the dead.
Republican leaders like to say that tax policies shouldn’t drive the budget; instead, budgets should drive tax policies.
However, in a brazen display of cognitive dissonance, they don’t appear to understand that the inflexibility of a flat tax would in fact drive budgets.
As many commentators and think tanks have pointed out, the first order effect of a flat tax would be to increase the tax burden of lower income folks while creating a huge windfall for high-income families.
Furthermore, the flat tax proposed by the GOP would not generate enough revenues to meet budgetary needs, so other taxes would have to be raised.
Iowa would almost certainly require a sales tax rate well north of 10 percent on all goods, including groceries and drugs.
Again, greater reliance upon higher sales tax rates would be highly regressive. Another case of sticking it to the little folks in order to give tax breaks for the GOP donor class.
But I want to bring up a less-obvious macroeconomic problem with a flat tax.
When the economy is booming and incomes rise, you want tax revenues to increase faster than incomes.
And during an economic downturn you want revenues to fall faster than incomes.
At first this might seem counter-intuitive. We typically hear politicians tell us that during hard times governments must “tighten their belts” in the same way that households have to tighten their belts.
This is bad macroeconomic advice. One of the beauties of a steeply progressive tax system is that it is counter-cyclical, which tends to dampen the boom/bust pattern of the business cycle.
Ideally, we want a tax system that accumulates surpluses during the good times and reduces tax receipts while spending down those surpluses during the bad times. A steeply progressive tax system accomplishes that goal.
A flat tax is pro-cyclical and tends to exacerbate boom/bust cycles.
Lately we’ve seen plenty of zombie movies and TV series; we don’t need another zombie tax idea wandering the halls of the capitol dome.
Mike Johnson lives in West Branch. The Cedar Valley Voices seeks to promote Democratic and progressive ideas of the residents who live in the Cedar County area.
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