CEDAR RAPIDS — Gov. Terry Branstad is open to a proposal by legislative Republicans for giving Iowans a “flat” state income tax option, but is withholding judgment on the plan being floated by House Speaker Kraig Paulsen.
“It’s too early,” Branstad said, to take a position on Paulsen’s proposal to let Iowans continue filing their income taxes under the current system or choose to pay a 4.5 percent flat tax on their income with no deductions.
The governor, who spoke Wednesday at NextEra’s Duane Arnold Energy Center at Palo near Cedar Rapids, said he’s concentrating on reviewing bills passed in the 2014 legislative session. The five-term Republican has until early June to decide whether to sign or veto legislation.
Paulsen, a Hiawatha Republican, and the governor have discussed the idea. House Republicans have previously proposed giving Iowans the option of using the current income tax schedule or paying the flat tax. However, the Democratic-controlled Senate had little interest.
“I do know that is something he has interest in,” Paulsen told a meeting of central Iowa Republicans.
Paulsen estimated the flat tax would amount to a tax cut equivalent to $400 million to 500 million income tax cut, according to a Radio Iowa report of his remarks.
“My guess is it would grow the state of Iowa (economy) and end up over time increasing revenue because I think that is what’s happened every single time we’ve cut income taxes in the state of Iowa,” he said.
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Branstad flirted with the flat tax in 2013, but gave up on the idea because of opposition from Democrats who say it amounts to a tax break for the wealthy and does nothing to make the tax system fairer.
However the governor may renew his interest in the concept during his re-election campaign.
“As the campaign goes on, we’ll be laying out ideas to make Iowa even more competitive for the future,” Branstad said. “I’m very interested in working with the speaker and others on different ideas to help make Iowa more competitive.”
A flat tax could compliment the commercial and industrial property tax relief passed by the Legislature in 2013, Branstad said. Those changes will begin to be felt this year.
Also, with the state picking up a larger share of mental health costs and K-12 school aid, Branstad said, Iowans should also see “some modest reduction, at least, in residential and ag prop taxes as well.”
“Making (taxes) more competitive, those are certainly things I’m interested in,” Branstad said.