Iowa tax policy ideas starting to see legislative movement

Senate Democrats worked Tuesday to move a priority property tax relief bill closer to a conference with the House while GOP senators unveiled a new simplified income tax plan that they hoped would become part of the overall package to be negotiated with Gov. Terry Branstad.

Sen. Randy Feenstra, R-Hull, said all 24 minority Senate Republicans have signed onto a proposal to significantly lower state personal income tax rates and simplify the Iowa tax code by offering a two-pronged approach that would eliminate federal deductibility and benefit most Iowans.

The bill filed Tuesday would provide a 5 percent across-the-board income cut for all Iowa taxpayers in the 2013 tax year, Feenstra said. It also would either offer a 15 percent reduction over a three-year period or an alternative to “the current multi-rate, highly complex, anti-competitive system” that would let taxpayers choose which method produced the lower tax liability, he said.

Under the Senate GOP approach, no taxpayer would receive a tax increase. On average, taxpayers would receive a tax reduction of $360 in tax year 2014 and $516 in tax year 2015 and benefit from a simplified system or continue preparing their yearly returns as they currently do, Feenstra said. The plan would provide a reduction of $174 million in tax year 2013 and grow to $623 million by the 2017 tax year, he added.

“The ripple effect that this bill creates is tremendous,” said Feenstra. “Tax reform is simply good policy and this bill not only puts money back in family budgets, but creates jobs and helps grow the economy.”

The Hull Republican said the proposed new tax structure would flatten the current nine income tax brackets into three, elimination of federal deductibility as a competitive impediment, enhance the current standard deduction for all taxpayers and provide an extra boost for blind, elderly and dependent Iowans, eliminate itemized deduction, increase personal exemption credits, and raise filing thresholds.

Feenstra held out hope the GOP plan would draw bipartisan support, but a skeptical Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said the plan was heavy on talking points but “really, really sketchy” in providing details necessary to evaluate the overall effect.

“They've come up with a mechanism that massively benefits the richest Iowans. Warren Buffet would probably move to our state as a result of their legislation but no one else will,” said Senate Majority Leader Mike Gronstal, D-Council Bluffs. “It's a tax plan that hurts middle-class families. I've been through this before.”

Democrats, who hold a 26-member majority in the Senate, moved ahead Tuesday with plans for a $250 million commercial property tax cut over five years targeted at small and Main Street businesses. Senate File 215 cleared a subcommittee with lead sponsor Sen. Matt McCoy, D-Des Moines, expecting it to clear the full Senate Appropriations Committee Wednesday and see floor debate Thursday en route to the House where majority Republicans are likely to send the tax policy issue to a conference committee.

The Senate bill, which already has passed the Senate Ways and Means Committee, would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial entities would have property values above that threshold taxed at the current 100 percent rate.

House Republicans have proposed to provide relief to all property classes by having the state take over the full cost of funding the school aid formula. Currently, the state contributes 87.5 percent of the total cost of the K-12 school aid formula and the rest is funded by local property tax dollars. House File 2 seeks to increase the percentage the state contributes by 2.5 percent annually for five years.

Gov. Terry Branstad has offered a plan that would reduce the percentage to 80 percent over four years. The bill requires that a standing appropriation be made each year by the Legislature in the exact amount of reduced property tax dollars, to be given back to city and county governments. He also seeks to lower the amount that residential and agricultural classes of property could increase -- from 4 percent to 2 percent.

During a meeting of the Iowa Partnership for Economic Progress board Tuesday, Branstad said he believed discussions on a property tax compromise are “going to move now finally.”

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