As state legislators close out the 2008 legislative session and confront the tasks of maintaining commitments and investing in Iowa’s future, they will have to deal with a basic question: How is the budget gap to be financed?
Each financing decision has a different set of consequences for Iowans at different income levels. This means that, when answering the question of how to finance important state programs during a budget shortfall, it is crucial to remember a basic principle of taxation: fairness.
It is also important that a tax system include a combination of each type of tax — property, sales, individual income and corporate income — since each relies on a different revenue stream that will respond differently to economic growth and decline. Diversity in tax sources adds stability to the revenue stream. Tax systems should also maintain a level playing field for all taxpayers by not distorting economic decision-making or allowing tax avoidance through leaky seams in the tax code.
