Will Iowa GOP flat tax plan stimulate growth or make the rich richer?

CEDAR RAPIDS — Flattening state income tax rates and exempting retirement income would either lead to growth in businesses and jobs and increase Iowans wealth, or simply make wealthy Iowans wealthier, according to speakers at a public hearing on a tax plan set to be debated later this week.

House Republicans are proposing a four-year gradual reduction in the personal income tax rate to 4 percent and eliminate taxes on retirement income. Their plan, along with proposals from the Senate GOP and Republican Gov. Kim Reynolds, are under discussion at the Capitol, making some form of tax change likely this year.

Similar to previous hearings on the plans, speakers at the Monday evening public hearing were divided between those who said a flatter tax rate would make Iowa a more attractive place for businesses to locate and expand — as well as a more attractive place for employees to live and work — and those who said the plan largely benefits the wealthy while doing little to help lower-income workers.

House File 2317 will drive real investment in Iowa by allowing people to keep more of what they make, Drew Klein of Americans For Prosperity told legislators.

“When you put money back in the pockets of everyday Iowans, they invest in their futures,” he said, “and our future as a state is intrinsically tied to the investments that they make.”

The bill merely is another attempt by Republicans to give the “wealthy and big businesses tax breaks, while taking money away from our public schools, public safety and health care services, Matt Sinovic of Progress Iowa said.

“With this tax proposal that gives millions to the wealthiest in our state and puts the hammer down on working families, the Legislature is doubling down on the policies that created Gov. Reynolds’ workforce crisis,” Sinovic said.

Rather than make Iowa’s tax system fairer, Anne Discher of Common Good Iowa said, “this bill will make Iowa's already unfair tax system even more unfair.” The bottom 80 percent of taxpayers pay about 10 percent to 12 percent of their incomes in state and local taxes. The wealthiest taxpayers pay less than 8 percent, she said.

Personal income taxes, she continued, generate half the state’s general fund that pays for education, health and human services, environmental protection and the justice system.

“There's simply no way to make these kinds of permanent tax cuts without decimating our state budget,” Discher said.

According to a Legislative Services Agency analysis, the 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 of $5.002 billion on state revenue over six years. In recent years, the annual state general fund budget has exceeded $8 billion.

A flat income tax rate isn’t the only feature of the GOP plan, and JD Davis of the Iowa Association of Business and Industry said provisions on employee stock ownership stand to benefit Iowa workers. His association represents 1,500 companies with 330,000 employees — “all of them taxpayers,” he said.

Those provisions, Davis said, will increase the number of companies with employees in ownership positions “and is going to be very good at creating wealth in Iowa, and helping folks have a stake in the businesses they’re working for.”

Davis and others praised the exemption on retirement income. It will encourage older Iowans to stay in the state and stay active in their communities and philanthropy.

However, Discher said the average savings to a retiree will be $610 a year.

“No one is going to decide to stay in Iowa or to leave Iowa over $610,” she said.

Others called for relief from property taxes and the sales tax. It may seem like a break for the poor, Marjena Sloan of Grinnell said in a written comment, “but then I hear about increasing sales taxes and property taxes, so where is this wonderful savings?”

“Pretty much another stealing from Peter to cover for Paul’s tax cuts,” Sloan said.

Lois Gorman of Altoona said 27 percent of her Social Security income goes to pay property taxes on her 52-year-old, 960-square-foot home.

However, Des Moines area Realtor John Stark encouraged lawmakers to adopt the flat tax and exempt retirement income.

“Reducing the complexity and rates of Iowa’s income taxes will positively impact the citizens of our state, minimize the appeal of moving out of Iowa and attract new residents and businesses,” Stark wrote.

The tax plan “might well be the best thing that you all can do this session to help grow population and workforce in Iowa,” said Sharon Presnall of the Iowa Bankers Association.

She went on to ask legislators to consider “tax equity” for banks and credit unions, which are exempted from state and federal income taxes.

“The current income tax disparity is unsustainable” for community banks, Presnall said.

Comments: (319) 398-8375; james.lynch@thegazette.com