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The diversity argument for municipal income taxes

January 05, 2009

Iowa City's Press-citizen.com brings us perhaps the lamest possible argument for giving Iowans the nightmare of municipal income taxes:

A local government expert at the University of Iowa College of Law says a proposal before the Legislature that would allow local governments to assess an income tax is worth considering as a way for money-strapped cities to avoid cutting services.

Jeff Schott, program director of the Institute of Public Affairs, said it is better for cities to have diverse revenue streams.

Ah, the "diversity" argument. Of course, the first paragraph gives the game away - it's really about increasing taxes. But by wrapping it in the fuzzy cloak of diversity, maybe they think they can confuse the taxpayers until they are completely flummoxed by their municipal income tax returns.

Whatever this "expert" thinks, diversity isn't necessarily such a good thing here. Having the police department steal cars and sell the parts would diversify the municipal revenue stream. So would road trips into nearby farms to steal anhydrous to sell to meth labs. But except perhaps in Polk County, most municipalities wouldn't think such diversity is wise.

Predictability, reliability and ease of administration are more useful to municipal planners than "diversity." Income taxes are subject to wild swings based on the year-to-year performance of big local businesses, and on one or two rich guys moving out of town or dying. Property taxes, for all their faults, are the most steady and reliable taxes out there, and the counties know after 160 years how to administer them.

But the temptation is always to try to avoid tough spending choices by finding a new revenue source. It's much less fun to eliminate an unnecessary job for the county board chairman's nephew than it is to promise a new and improved convention center. The push for municipal income taxes is just another way to help keep officeholders from facing the hard part of their jobs.

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