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Cedar Rapids, Iowa 52401
DES MOINES — The Iowa House has approved a plan to gradually move to a “simple, responsible” income tax rate of 4 percent for all Iowans despite warning that it will increase the gap between haves and have-nots and reduce the state’s ability to support services such as education and public safety.
“This is a historic tax bill that will change the climate in the state of Iowa for years to come,” Ways and Means Chairman Lee Hein, R-Monticello, told the House before House File 2317 was approved with bipartisan support, 61-37, Wednesday.
The bill, one of three GOP tax relief plans under consideration, would phase in a four-year gradual reduction in Iowa’s personal income tax rate from the current top rate of 8.53 percent for the highest wage earners to 4 percent for all taxpayers.
Those highest earners will reap the most benefits, according to 39 of 40 Democrats who voted against the bill.
“I am not a millionaire. I do not make a million dollars a year,” House Minority Leader Jennifer Konfrst, D-Windsor Heights, said. “But if I did, I would sure like the tax cuts we've had the last few years.”
Tax relief should focus on middle-class Iowans “who deserve a tax cut most because they've been left behind in other tax cuts,” Konfrst said.
Millionaires will pay more, Hein said. An Iowan with a gross income of $1 million or more would pay “well over $40,000 in taxes” under the plan. A working couple with one child with wages somewhere around $70,000 would pay $3,600.
“Who will pay more taxes? Obviously the rich,” Hein said.
Older Iowans will see a “huge benefit” because the bill exempts retirement income from income taxes. Iowa would become the 13th state to make retirement benefits tax-free.
Tax relief is a priority of Republicans who argue the state can afford to return taxpayers’ “overpayment” by lowering tax rates.
HF 2317 is nearly the same as Gov. Kim Reynolds’ plan in that it would lower the state income tax to 4 percent. Unlike her plan and the Senate bill, the House doesn’t include any corporate income tax relief. The Senate would go further by lowering the tax rates to 3.6 percent and using a state taxpayer relief fund to eventually eliminate the income tax altogether.
According to a Legislative Services Agency analysis, the House bill would lower income tax collections by $5.8 billion from fiscal 2023 through fiscal 2028. That would be partially offset with transfers of $829 million from the taxpayer relief fund for a net impact on state revenue of $5.002 billion over six years. Republicans have proposed an $8.2 billion general fund budget for the fiscal year starting July 1.
A 4 percent flat tax, according to House Speaker Pat Grassley, R-New Hartford, “doesn't pick winners and losers. We've been clear since beginning of session, we have the money to pass a tax cut without raising taxes on others.”
“Picking winners and losers. That's what we've been doing for a long time and I think it's time the middle class won,” Konfrst said.
Democrats filed amendments seeking to improve the GOP plan. One by Rep. Steve Hansen, D-Sioux City — who voted for the bill — would lower the tax rate to 4 percent for couples filing jointly with incomes up to $150,000 and 6 percent for others. The top bracket would gradually decrease to 4.82 percent.
Konfrst proposed a new tax bracket that would cap the 4 percent rate at $1 million so those with higher incomes would be taxed 6.5 percent.
Other proposed amendments would have expanded the Earned Income Tax Credit, the credit for emergency medical services personnel, the deduction for teachers’ expenses and increase the Iowa Child and Dependent Tax Credit to 100 percent of the federal credit for those making less than $45,000 a year.
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