Legislative Dems, Culver agree on tax plan

DES MOINES - Legislative Democrats and Gov. Chet Culver have reached an agreement on a tax plan they say would give 60 percent of Iowa income tax filers a break.

Although the plan to lower income tax rates and end federal deductibility may be modified before law makers debate it later this week, Democratic leaders in both chambers and the governor's office said there's agreement on what Senate Majority Leader Mike Gronstal, D-Council Bluffs, called "the elements of a bill on middle-class tax cut."

"It looks like we're on track," House Ways and Means Committee Chairman Paul Shomshor, D-Council Bluffs, said, explaining that the latest plan would mean lower taxes or no change for nearly 74 percent of Iowa income tax filers.

Not only is that an improvement, Gronstal said, but, perhaps, more importantly, "We think we've got a package we can pass."

They'll have to pass it without Republicans support because whether the Democratic plan holds harmless 66 percent of Iowa taxpayers or 74 percent, it still looks like Iowans are being set up for a future tax hike, according to Senate Minority Leader Paul McKinley, R-Chariton.

"Iowans are sick and tired of their government trying to enact even more tax increases," McKinley said. "It is time for government to

tighten its belt, scrap this tax increase legislation and get serious about enacting legislation that will help get over 80,000 unemployed Iowans back into jobs."

Increasing the percentage of Iowans who don't get a tax hike is an improvement, but Rep. Tom Sands, R-Columbus Junction, the ranking Republican on the tax-writing House Ways and Means Committee, doesn't know that there is a magic number at which the GOP will agree some Iowans should pay more taxes so others pay less.

There was no magic number for Culver to endorse the plan, his spokesman Phil Roeder said, "But we wanted to make sure it included most Iowans." The fact the latest version increases the percentage of Iowans getting a tax cut from 49 percent to 60 percent was important, he said.

"If we're going to make a change, the governor wants to make sure most people get a cut, especially now," Roeder said. "One of governor's priorities was not raising taxes in this recession."

The fact House File 807 would raise taxes on about 40 percent of filers is outweighed by the benefits, Roeder said. Those paying more would largely be Iowans with adjusted gross incomes of $125,000 or more.

The governor also considered the benefit of tax simplification and lower overall tax rates that will make the state appear more competitive with other states, Roeder said. That should help attract business to Iowa, he said.

However, it's unacceptable to Republicans for the government to be in the position of picking winners and losers, Sands said.

"If we're going to do that, let's pick all winners," Sands said. "If we're make 10 or 20 percent losers when those are the small businesses that create jobs?"

Republicans, Sands said, are ready to make their case against ending federal deductibility without safeguards protecting taxpayers from paying more. He plans to offer amendments similar to those he offered at the committee level to lower tax rates as Democrats proposed, but maintain federal deductibility.

The Republican caucus also is discussing whether to offer an amendment similar to the tax reform the House and Senate approved in 2003 that could have led to the end of federal deductibility. That plan, authored by current House Minority Leader Kraig Paulsen, R-Hiawatha, and others, would have lowered the top rate from 8.98 percent to 7.61 percent over three years. Then, if voters approved a constitutional amendment requiring a 60 percent vote by the Legislature to raise tax rates, federal deductibility would have been eliminated. The top income tax rate then would have fallen to 4.9 percent.

It became moot because Democratic Gov. Tom Vilsack vetoed the legislation.