Iowa senators press tax cuts despite federal uncertainty

DES MOINES - Iowa senators sent a defiant message Wednesday that they plan to forge ahead with state tax cuts regardless of a federal threat that such action could run afoul of a provision in the recently enacted COVID-19 relief plan that assists states dealing with the economic hardship brought on by the pandemic.

'The federal government will not trounce over states' rights and freeze tax policy for the next two years here in Iowa,” said Sen. Dan Dawson, R-Council Bluffs, before a bipartisan Iowa Senate voted 46-0 to send the Iowa House a package of broad-based tax reforms despite a number of unresolved issues clouding the outlook for Iowa's economy and uncertainty surrounding the federal stimulus help.

Senate File 576 proposes to accelerate the state's 2018 income tax cuts by eliminating revenue 'triggers” that need to be met before lower tax rates kick in. The bill also would phase out the state's inheritance tax over three years, ending it by Jan. 1, 2024.

The proposed legislation would strike requirements that state general fund revenue increase by 4 percent and equal or exceed $8.3 billion by fiscal 2024 for state income tax cuts enacted in 2018 to take effect.

Removing these revenue 'triggers” would enable Iowa to lower its top tax rate to 6.5 percent, compress income tax brackets from nine to four and eliminate federal deductibility,

Dawson is among a number of Republicans across the country who are taking issue with a $350 billion pot of money set aside under the stimulus, known as the American Rescue Plan, to help cash-strapped cities, counties and states pay for the costs of the pandemic. Congressional lawmakers opted to restrict states from tapping these federal dollars to finance local tax cuts.

This week, 21 Republican state attorneys general threatened to take action against the Biden administration over its new $1.9 trillion coronavirus stimulus law, decrying it for imposing 'unprecedented and unconstitutional” limits on their states' ability to lower taxes.

During Wednesday's floor debate, Dawson said Iowa has the financial capacity to proceed with tax cuts at the state level and cited 10th Amendment states' rights in pushing back against federal restrictions that he called 'short sighted and egregious” provisions.

'We will not hold up our tax policy based upon the whims of the federal government and, if our federal government overlords wish to continue down this path of a massive constitutional overreach of the normal business of state tax policy, then it's very likely that the states will see the federal government in court,” he said.

'Stimulus is a one-time shot; tax code change is permanent,” said Dawson. 'What we have here today is building Iowa back better.”

He said SF 576 would eliminate the 'shortsighted” triggers that are impeding significant tax relief now,

Sen. Pam Jochum, D-Dubuque, noted that the 2018 'triggers” - provisions added at the insistence of GOP Gov. Kim Reynolds and House Republicans - were enacted as 'guardrails” to keep the state budget from going off track should a halting economy not produce the growth needed to maintain funding priorities.

She also questioned why the legislation was being rushed with the state Revenue Estimating Conference slated to meet Friday to revise the state's tax collection forecast, and majority Republicans yet to announce their joint fiscal 2022 state budget targets.

'I think our timing is very off,” she said.

House Speaker Pat Grassley, R-New Hartford, has previously expressed concerns that the latest federal pandemic relief package may prevent Iowa and other states from cutting taxes this year and that 'a lot of unanswered questions” regarding the state's economic outlook remain as House Republicans assess whether there is room to speed up income tax cuts and eventually eliminate the inheritance tax as their Senate counterpart envision.

Dawson said Wednesday's Senate action was meant to 'send a strong message to our colleagues across the aisle that this is a good bill, it's good policy and it puts Iowa in a great position going forward.”

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