Government

Iowa Senate Republicans approve massive tax cut plan

Democrats predict proposal will bankrupt the state budget

Sen. Randy Feenstra, R-Hull
Sen. Randy Feenstra, R-Hull
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DES MOINES — Senate Republicans passed a sweeping tax relief and simplification plan Wednesday they called a bold initiative to eventually cut individual and corporate income tax rates by $1 billion a year and spur growth, but a Democrat warned they are riding “a bobsled to bankruptcy.”

Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee, said the measure simplifies a complicated code, improves the state’s competitive position and delivers “the largest tax cut in history of the state of Iowa.”

Senators voted 29-21 to approve Senate File 2383 and send it to the Iowa House. All 29 GOP senators voted for it while independent Sen. David Johnson joined 20 Democrats in opposition.

“Today is a monumental day for Iowa families and Iowa workers,” said Feenstra. “ ... Yes, this is bold. Senators, we must be bold if we want to drive Iowa’s economy by creating higher wages, more jobs and more opportunities.”

The plan, called the Iowa Working Families Tax Relief Act, seeks to eliminate Iowa’s federal deductibility in favor of cutting personal income taxes by 30 percent over a two-and-a-half year period of indexing. Iowa’s top individual income tax rate would be lowered from 8.98 to 6.3 percent and the corporate income tax rate would come down from 12 to 7 percent. The number of brackets would be compressed from nine rates to five for individuals. On the corporate side, four brackets would be reduced to two rates of 7 and 5.5 percent.

However, Democrats questioned how Republicans would pay for the massive cuts, noting the state budget lawmakers have to put together still this session would take a $246 million hit under the Senate GOP plan.

They also noted that Republicans in the House planned to work off Gov. Kim Reynolds’ tax cut proposal, not the Senate’s measure.

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“This is a bill that’s going nowhere,” said Sen. Matt McCoy, D-Des Moines, noting it was put on a one-week fast track from the time it was introduced until it came to senators Wednesday.

Democrats said the plan was being pushed with no public input. They predicted it would have “catastrophic consequences” for education, safety, managed health care and other vital services. They also said 4 percent of Iowans in the upper tax brackets would reap 22 percent of the benefits.

“Sen. Feenstra, I know you mean well, but you are about to pilot a bobsled to bankruptcy for the state of Iowa,” McCoy said. “I have no doubt about it.”

According to a state Department of Revenue analysis, the 566,405 Iowa income-tax filers who earn $10,000 or less in 2023 would see an average tax cut of $178, or 240 percent. The dollar averages would grow, but the percentage increases would decline, among the various income brackets with those making $250,000 experiencing a $1,702 reduction and the 11,017 Iowans making over $1 million annually receiving a 12.7 percent tax cut averaging $5,796.

Overall, state income tax collections would drop by $1.031 billion a year, with an average cut of $610 or 22.7 percent, for the estimated 1,690,920 state filers.

A separate analysis of SF 2383 by the nonpartisan Legislative Services Agency indicated the multiyear GOP tax plan would reduce general fund revenue by more than $1.163 billion in fiscal 2023 in a state that has an annual budget currently at $7.2 billion.

According to the agency’s analysis, the general fund impact of the Senate GOP plan would be a reduction of $207.8 million in the 2019 fiscal year that begins July 1. In the following fiscal years, the revenue impact is a $770 million reduction in fiscal 2020, $941.3 million in fiscal 2021, $1.069 billion in fiscal 2022 and a $1.163 billion reduction in fiscal 2023.

Reynolds told reporters Wednesday it was a “positive” development that elected officials were discussing Iowa tax changes, which she said were made possible by a the federal tax rewrite.

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Reynolds unveiled her plan last month to cut Iowans personal income taxes by $1.7 billion over five years, revamp rates by phasing out federal deductibility and equalize sales tax collections by treating bricks-and-mortar and online businesses alike. Her plan did not address corporate income tax changes.

David Roederer, leader of the state Department of Management who serves as the Reynolds administration budget director, said the governor’s tax-cut proposal fits within the five-year state budget projections and includes triggers that delay implementation if the economy slows or stops growing.

“We need to be able to sustain it, we need to do it in a responsible manner,” Reynolds said, adding that she also wants to honor commitments to education and to “continue to fund priorities of our administration.”

Officials with the Iowa Fiscal Partnership, a progressive think tank based in Iowa City, issued an analysis of the Senate GOP plan indicating it would cut taxes and state revenue “well below what is required to maintain Iowa’s current budget for education, health, public safety, and other services — and its phase-in sets out large structural deficits for the years ahead.”

l Comments: (515) 243-7220; rod.boshart@thegazette.com

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