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TAX-OPTION BORDER COUNTIES: 'MORE BAD TAX POLICY'

February 28, 2005

David Brunori of Tax Analysts today notes the recent proposal to allow Iowa's border counties to opt out of the income tax:

More Bad Tax Policy -- Iowa

Fresh on the heels of the absurd proposal to exempt everyone under 30 years of age from income taxation, some Iowa legislators have another wacky idea. They want to let people who live along the border opt out of paying state income taxes. The proposal (HB 139) would allow residents along the South Dakota line to vote on whether they want to pay income taxes. They could substitute higher sales and property taxes for their income taxes. South Dakota does not impose an income tax -- and this is how the Iowa General Assembly would like to compete.

The proposed law would set up a five-mile zone along the state line. People in the zone could opt out of income taxation and pay higher sales taxes. The higher sales tax rates would be effective in the zone. So how many people do you think would shop in the zone? The zone would also have higher property taxes -- and property taxes are a big hit in Iowa. How long would it be before people in the zone demand property tax relief? Heck, they're already demanding property tax relief. How long do you think it would take before people just outside the zone want a similar deal?

Of course. Once the border counties opted out, the counties bordering the border counties (border border counties? Border Counties once removed?) would want the same option. And then the counties next to them...

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