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Are All Taxes Equally Bad? How Reducing Iowa'S Sales Tax Could Save Iowans More Than $100 Million Per Year

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  • Lapan, Harvey E.
  • Moschini, GianCarlo
  • Caruth, Brad

Abstract

Under current U.S. law, taxpayers can deduct up to 100 percent of their state income taxes from their adjusted gross income when calculating their federal income taxes. As a result, Iowans currently pay approximately $251 million less to the federal government than they would otherwise pay. There is, however, no equivalent stipulation allowing for the deduction of state sales taxes. Consequently, by eliminating the sales tax and replacing the lost revenue with an income-based tax, Iowans could save a substantial amount of money on their federal tax returns without any change in revenue for the Iowa government. Alternatively, by replacing the sales tax with an income-based tax, the State of Iowa could increase its tax revenue without increasing the total tax burden on Iowans. This analysis discusses four specific scenarios, with net benefits to Iowans ranging from $106 million to $157 million per year.

Suggested Citation

  • Lapan, Harvey E. & Moschini, GianCarlo & Caruth, Brad, 2002. "Are All Taxes Equally Bad? How Reducing Iowa'S Sales Tax Could Save Iowans More Than $100 Million Per Year," Hebrew University of Jerusalem Archive 18452, Hebrew University of Jerusalem.
    • Handle: RePEc:ags:hebarc:18452
    DOI: 10.22004/ag.econ.18452
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    References listed on IDEAS

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    3. Musgrave, R.A., 1985. "A brief history of fiscal doctrine," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 1, pages 1-59, Elsevier.
    4. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
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