Iowa Lt. Gov. Gregg: Iowa income tax is complicated, costly, outdated

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ALTOONA — The No. 2 executive in state government told an Iowa tax group Thursday the state’s income tax code is too complicated, too costly and in need of modernization to better address the demands and challenges of a rapidly evolving digital economy.

“The Iowa code needs to recognize that the marketplace is fundamentally different today,” acting Iowa Lt. Gov. Adam Gregg told the Iowa Taxpayer Association’s annual meeting. “We didn’t have a ‘Cyber Monday’ 100 years ago.”

Gov. Kim Reynolds, he said, is assembling a 2018 legislative agenda — her first since being sworn in as governor last May — that seeks to bolster Iowa’s competitive business climate in tax policy and skilled workforce areas currently impeding growth.

At the top of that list is addressing a 12 percent “published” top corporate rate that actually is mitigated by Iowa’s single-factor and federal deductibility features, he said.

The rate, though, creates “sticker shock” for companies looking to locate or establish a “nexus” in Iowa, Gregg said.

Similarly, individual income tax rates rank high nationally — with an 8.98 percent top threshold that is effectively around 6 percent when federal deductibility is applied.

But the complexities of both systems make Iowa uncompetitive, he said.

“I’m not really preaching to the choir, I’m preaching to the pastor here,” Gregg told the association, which produced a 2016 analysis of Iowa’s income tax system.

But Gregg said the numbers indicate change is needed to “create a simplified system with lower rates.”

He declined to provide specific changes that may be contemplated during the 2018 legislative session, noting many factors hinge on the outcome of the federal tax package that’s being reconciled between the House and Senate at the nation’s capital.

“We’re optimistic,” he said after the meeting. “You’ve got to be cautiously optimistic when it comes to action at the federal level. We’ve seen a lot of things that looked like they had momentum and end up not getting done. But this appears to have some good momentum, and I think hopefully some urgency to get it accomplished.

“We’re watching federal tax reform very closely, and that’s going to have a very big impact on state revenue and the kinds of things that we’re going to be able to do,” he added, “So rather than getting out there and saying we’re going to do x, y and z, I think it makes sense to monitor federal tax reform very closely and consider what that means for us.”

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