DES MOINES — Majority Senate Republicans unveiled a sweeping state tax plan Wednesday that would cut individual and corporate income taxes more than $1 billion a year beginning in 2019, reduce the number of tax brackets and expand the sales tax base by capturing more online transactions.
Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee, called it a bold approach that simplifies a complicated system, improves the state’s competitive position and delivers “probably the largest tax cut in history of the state of Iowa.”
Called the Iowa Working Families Tax Relief Act, the plan seeks to eliminate the current federal deductibility feature in favor of cutting personal income taxes by 30 percent over a two-and-a-half year period.
Iowa’s top individual income tax rate would be lowered from 8.98 to 6.3 percent and the corporate income tax rate would come down from 12 to 7 percent.
The number of brackets would be compressed from nine to five. Iowans in the $45,000-a-year income range would see an average yearly tax cut of $1,000 beginning with the 2019 tax year, while Iowans in the top income bracket could see a reduction of about $4,000 annually, Feenstra said. On the corporate side, Iowa’s four brackets would be reduced to two — 7 and 5.5 percent, providing about $240 million in relief over five years.
“This is real, meaningful reform coupled with a significant reduction — not just tinkering around the edges,” said Senate President Jack Whitver, R-Ankeny.
Senate Majority Leader Bill Dix, R-Shell Rock, said the proposed changes are aimed at rewarding work, encouraging investment and giving job creators confidence to provide career opportunities for Iowans.
ARTICLE CONTINUES BELOW ADVERTISEMENT
“This money will boost the local economy and provide opportunities for Iowans to invest in retirement, save for college or make important upgrades to the family home,” he said.
The Senate GOP plan comes on the heels of Gov. Kim Reynolds’ rollout of her proposed tax package earlier this month. The governor unveiled a significant tax package that seeks to cut Iowans personal income taxes by $1.7 billion over six years, revamp rates by phasing out federal deductibility and equalize sales tax collections by treating bricks-and-mortar and online businesses alike.
Reynolds’ spokeswoman Brenna Smith said Reynolds and her staff are reviewing Senate Study Bill 3197, but noted the governor “is pleased the Senate has built upon some of her proposals and that their bill not only cuts taxes, but also simplifies our complex tax code.”
Making the state’s tax code more competitive also would reduce the need for business tax credits that have become a favorite target of legislative Democrats, Feenstra said. Many of the business tax credit would be phased out or eliminated over five years, he noted, and permanently coupling Iowa’s system automatically with federal tax changes will aid farmers and job creators.
The Senate Republican plan seeks to change Iowa’s sales tax collection to protect Main Street businesses by making more online retailers subject to collecting it on transactions in the state. Feenstra estimated the change could generate an extra $120 to $140 million for the treasury.
Another part of the plan seeks to create balance among financial institutions by treating banks and credit unions the same and subject to similar tax provisions.
Also, the Senate GOP plan would increase the exemption for pension income from the current $6,000 for single filers and $12,000 for couples to $12,000 for singles and $20,000 per couples.
Iowa already exempts Social Security income from state taxation.
By tax year 2022, architects of the Senate GOP tax plan project a single mother with one child earning $33,000 a year would see a 65 percent reduction; a single taxpayer making $40,000 a year would see a 16.4 percent reduction and a married couple with two children making $48,000 annually would see a 20.5 percent cut.
ARTICLE CONTINUES BELOW ADVERTISEMENT
Thank you for signing up for our e-newsletter!
You should start receiving the e-newsletters within a couple days.
House Speaker Linda Upmeyer, R-Clear Lake, said she expects majority Republicans in the Iowa House to work off the governor’s plan and the new Senate GOP blueprint rather than devise a third tax-cut proposal.
“If we do a tax bill, we’re going to be very pragmatic about it,” Upmeyer told reporters this week. “We want to make sure it makes sense and continues to fund Iowans’ priorities. We want to find room to cut taxes, but we also want to make sure we fund the priorities of Iowans. I think they expect that.
“Additionally, making sure that to the extent that we can figure out all of the federal tax plan … the federal deductibility piece where Iowans could potentially pay higher taxes, we want to see if we can’t resolve that because that’s certainly not the intent,” she added.
Sen. Pam Jochum, D-Dubuque, ranking member of the Senate Ways and Means Committee, said Democrats have supported eliminating the option of Iowans deducting their federal tax liability from their state returns and equalizing sales tax collections.
“The question still is how does it fit into our budget, and will this force us to cut more and more services to educate our children, public safety and many other important essential government services?” Jochum asked. “The tax plan offered by Senate Republicans today must be viewed in light of disastrous tax-cut plans approved in Kansas and Oklahoma, which have resulted in massive cuts to education, public safety and other vital services.”
The difference there, Dix noted, is that Kansas policymakers failed to “manage their spending” while Iowa Republicans plan to learn from that experience.
l Comments: (515) 243-7220; firstname.lastname@example.org