Government

Iowa Senate working on 'fine points' of tax plan

Overall income taxes to be cut by $2.7 billion over six years

State Sen. Randy Feenstra, R-Hull, and Rep. Guy Vander Linden, R-Oskaloosa, chairmen of the Senate and House Ways and Means committees, respectively, confer on Wednesday on the backbench in the Senate chambers. (Rod Boshart/The Gazette)
State Sen. Randy Feenstra, R-Hull, and Rep. Guy Vander Linden, R-Oskaloosa, chairmen of the Senate and House Ways and Means committees, respectively, confer on Wednesday on the backbench in the Senate chambers. (Rod Boshart/The Gazette)

DES MOINES — A key Senate architect of a Republican tax package estimated to cut state income taxes by $2.7 billion over six years said Wednesday the final details are being drafted and the bill could see legislative action as early as Saturday.

“There was a major deal on Friday, and then there was a lot of minutiae that had to be resolved after the big major pieces, and that’s why we had to work very closely on what all these little fine points were,” said Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee.

Feenstra expected his committee will conduct a “walk-through” of the major elements of the tax cut and reform bill on Wednesday. But the details will be contained in an amendment that will be debated on the Senate floor.

Adj. gross incomeAGI midpointAvg. tax changeTax change as % of income (median of bracket)
$10,000 or less$5,000-$1-0.02%
$10,001 to $20,000$15,000-$18-0.12%
$20,001 to $30,000$25,000-$53-0.21%
$30,001 to $40,000$35,000-$92-0.26%
$40,001 to $50,000$45,000-$125-0.28%
$50,001 to $60,000$55,000-$152-0.28%
$60,001 to $70,000$65,000-$182-0.28%
$70,001 to $80,000$75,000-$215-0.29%
$80,001 to $90,000$85,000-$257-0.30%
$90,001 to $100,000$95,000-$295-0.31%
$100,001 to $125,000$112,500-$363-0.32%
$125,001 to $150,000$137,500-$475-0.35%
$150,001 to $175,000$162,500-$588-0.36%
$175,001 to $200,000$187,500-$718-0.38%
$200,001 to $250,000$225,000-$934-0.42%
$250,001 to $500,000$375,000-$2,593-0.69%
$500,001 to $1,000,000$750,000-$6,465-0.86%

The state Department of Revenue developed a 49-page analysis of the budget deal that includes breakdowns of the various components of the proposal. Feenstra said a controversial proposal to begin taxing credit unions similar to other financial institutions is not included in the final package.

Earlier this week, Senate Majority Leader Jack Whitver, R-Ankeny, said preliminary numbers indicate individual taxpayers and businesses will see their tax liabilities lowered beginning in the 2019 tax year.

The overall cut for state income taxes paid by individuals and businesses would be about $2.7 billion. But the net effect would be closer to $2 billion over six year due to sales tax “modernization” changes that attempt to capture more state revenue via online purchases made by Iowans.

According to information issued by Gov. Kim Reynolds’s office last week, individuals, families and business owners will receive $398 million in income tax relief in 2019 by providing an average tax reduction of nearly 10 percent. The revenue department analysis indicated rates would be lowered between 5 percent and 8.3 percent in the 2019 tax year.

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According to the revenue agency analysis, for tax year 2019 Iowa’s 1,639,741 income tax filers would receive an average cut of $243, or 9.8 percent.

Here are some examples:

• Iowans making between $10,000 and $20,000 would see an average cut of $18 in the first year of the tax plan’s implementation.

• Those with yearly income in the $60,001 to $70,000 range would receive an average cut of $182.

• Taxpayers making from $250,001 to $500,000 would see their tax liability reduced by $2,593.

• The cut would be $6,465 for incomes from $500,001 to $1 million

• It would be $18,773 for Iowans with a yearly adjusted gross income topping $1 million.

According to the revenue agency analysis, state tax collections by fiscal year would be reduced by about $100 million in fiscal 2019; by $261.7 million in fiscal 2020; $328.5 million in fiscal year 2021; $390.5 million in fiscal 2022; $437.5 million in fiscal 2023; and $642.6 million in fiscal 2024.

By calendar tax year, the reductions would be $255.3 million in 2019; $307.6 million in 2020; $391.6 million in 2021; $405.9 million in 2022; $525.9 million in 2023; and $851.9 million in 2024.

Fewer brackets

The nine brackets now ranging from 0.36 percent for annual taxable income of $1,628 or less to the top rate of 8.98 percent for yearly taxable incomes over $73,260 would be revamped to 0.33 percent at the low income end up to a top rate of 8.53 percent in tax years 2019 and 2020, according to the Department of Revenue analysis.

When fully implemented, as soon as 2023, the plan will reduce the number of individual income brackets from the current nine to four. They would begin with a low rate of 4.4 percent and with a top rate of 6.5 percent for Iowans making $75,000 or more — and eventually would eliminate the ability for Iowans to deduct their federal taxed paid on their state returns.

The top corporate rate will be lowered to 9.8 percent, from the current 12 percent.

Republicans say their plan is designed to prevent Iowans from seeing an increase in their state tax liabilities due to the recent federal tax reform that cut Iowans’ federal tax liabilities by an estimated $1.8 billion. But those cuts would translate into higher state taxes for Iowans who have lower federal taxes to deduct on their state returns.

Aiming for fairness

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The Republican tax package is intended to make Iowa’s tax code more competitive and transparent, to simplify Iowa’s complicated tax code and to modernize the state sales tax system to create more fairness between Main Street businesses and online merchants operating in the 21st century economy, architects say.

State sales taxes would be collected and remitted on digital books, ring tones, electronic games and entertainment, ride-sharing services, online travel site and subscription services such as streaming audio or video among other items.

Other provisions automatically couple the state system with most federal tax laws and provide a comprehensive review of tax credits.

Also, to address state budget concerns, sponsors say the tax plan uses a trigger to protect budget sustainability in future years, ensures full repayment of the cash reserve fund this year and does not reduce the property tax backfill.

The agreement also maintains large ending balances in both fiscal year 2019 and 2020 and protects budget commitments made to education, health care and public safety, according to backers.

The agreement also provides tax relief to farmers and small business owners.

Federal deductibility for corporate income taxes is slated to be eliminated by tax year 2021, with some exceptions, while the phaseout for individual income taxes will be completed by 2023.

Triggers will be based on reaching or exceeding an annual net general fund tax receipts of four percent. The plan included an example of tax receipts valued at $8.314 billion for fiscal 2022.

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

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