Government

Iowa Senate unveils 'bold but prudent' tax cuts

Triggers would set stage for corporate tax rate reductions

(File photo) The dome of the Iowa State Capitol building from the rotunda in Des Moines on Tuesday, Jan. 10, 2017. Suspended across the dome is the emblem of the Grand Army of the Republic (G.A.R.). The emblem, painted on canvas and suspended on wire, was placed there as a

reminder of Iowa's efforts to preserve the Union during the Civil War. (Stephen Mally/The Gazette)
(File photo) The dome of the Iowa State Capitol building from the rotunda in Des Moines on Tuesday, Jan. 10, 2017. Suspended across the dome is the emblem of the Grand Army of the Republic (G.A.R.). The emblem, painted on canvas and suspended on wire, was placed there as a reminder of Iowa's efforts to preserve the Union during the Civil War. (Stephen Mally/The Gazette)
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DES MOINES — Senate Republicans unveiled a new plan Thursday to cut Iowans’ individual state income taxes by 8 percent across-the-board next year as part of a phased-in overhaul to lower rates, compress brackets and make other changes that would result in about $2 billion in relief over five years.

The proposal is more expansive than a House GOP proposal made a day earlier, which among other differences does not include a provision envisioning corporate tax rate cuts.

Sen. Randy Feenstra, R-Hull, said the changes slated to take effect beginning in January under the Senate plan would allow taxpayers to pay $733 million less in state income taxes in the first two years.

After that, the plan would create triggers: If Iowa’s economy produces more than 3.6 percent in revenue growth, the excess money would flow into a trust account until it hits $200 million, at which time the money would be used to buy down tax rates, eliminate federal deductibility and begin lowering corporate income taxes in 2021.

“I am really thrilled. I am so excited about this plan,” Feenstra told a Senate Ways and Means subcommittee meeting where details were sketched out to senators and other attendees. “The first year, every Iowan gets an 8 percent reduction and we think that’s really important,” added Feenstra, who said he expected the provisions to be in bill form next week.

When fully implemented — and if the trigger requirements are met — the Senate GOP plan would reduce Iowa’s top personal income tax rate from 8.9 percent to just under 6 percent, compress nine tax brackets into four and lower the state corporate tax rate from 12 to about 7 percent, he said.

Other features of the plan that Feenstra called “bold but prudent” would allow farmers and businesses to take a one-time depreciation deduction of up to $500,000, double the pension exemption, raise standard deductions to $12,000 for single files and $24,000 per couple, modernize the sales tax system to capture more online sales, bring tax parity to financial institutions and phase out some existing state tax credits.

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At the same time, GOP senators expect to provide about $200 million in new spending next fiscal year and $235 million for fiscal 2020 after closing the fiscal 2019 budget year with an ending balance of about $136 million on June 30, 2019.

“Wow,” was the reaction of Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, when told the details of the Senate GOP plan that was unveiled across the rotunda.

His committee had just voted 13-10 to approval a House GOP plan that would lower Iowans’ tax burden by $1.3 billion over five year but would not include an eventual corporate income tax cut or elimination of federal deductibility.

“I’m a little hesitant to comment on the Senate plan because I haven’t seen it,” said Vander Linden, who described the House approach as responsible effort to provide tax relief while maintaining obligations to fund education, Medicaid and other priorities.

Rep. Peter Cownie, R-West Des Moines, said the House changes would continue to provide revenue to balance the budget, be fair and help working Iowans.

After two years in a row of midyear cuts to deal with budget shortfalls, House Democrats were skeptical the math would add up this time.

“The bottom line is that No. 1, we haven’t balanced the budget and we don’t have a budget in front of us right now,” said Rep. Dave Jacoby, D-Coralville, ranking member of the House Ways and Means Committee. “How can we make tax reform work when we’re in the middle of the year (and) we made a number of de-appropriations?”

During Thursday’s House committee meeting, Rep. Todd Prichard, D-Charles City, offered an amendment calling for the Legislature to repay any money borrowed from reserves or the economic emergency fund before enacting tax cuts.

It was a “common sense” approach to avoid pushing the state into debt, he said.

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Cownie argued against the amendment, saying it would prevent the state from passing its tax windfall created by federal tax code changes along to Iowans.

But without Prichard’s amendment, the tax cut proposal was “dubious,” Jacoby said, and it would be questionable whether the Legislature could have the funds available to balance the state budget — as required by the Iowa Constitution.

Rep. Chuck Isenhart, D-Dubuque, offered an amendment tying tax cuts to federal trade policy.

Both failed on party-line votes.

Rep. John Forbes, D-Urbandale, argued the GOP plan would create a windfall for higher income Iowans. Forty percent of the relief would go to 2.5 percent of higher-income households, he said. Although he supports tax relief, “I have a hard time figuring out how this is fair for all Iowans.”

Cownie countered that the biggest cuts are in the lowest tax brackets.

Across the rotunda, Sen. Joe Bolkcom, D-Iowa City, said he was disappointed by the lack of details provided by majority GOP senators on a major tax-policy change, noting it made Thursday’s meeting “seem more like a dog-and-pony show than a subcommittee” given that the plan was presented as “talking points” in a format that was described as a public hearing.

Sen. Pam Jochum, D-Dubuque, noted the two GOP plans are “very different,” but Feenstra and Vander Linden expressed confidence those differences can be addressed in negotiations.

“The bottom line here is the Senate is going to stay as long as it takes to make sure that the Iowa taxpayers get what they deserve,” Feenstra said.

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