DES MOINES — Lawmakers and lobbyists were generally supportive of the goals of Gov. Kim Reynolds’ proposed tax modernization plan Thursday but disagreed on whether her $1.7 billion proposal would yield the promised tax relief.
“It’s targeted toward the middle class, small businesses, working class families,” the governor’s lobbyist Ted Stopulos said during a House Ways and Means subcommittee hearing on House Study Bill 671.
“At the same time, the bill is designed to modernize Iowa’s tax code ... (and) also provides a mechanism for budget sustainability going forward,” he said. “That’s a key piece for the governor.”
But it was a key concern for Democrats on the subcommittee.
“As Democrats, we look forward to working with both sides of the aisle to make a plan, a strategy that works in the long-term for all Iowans,” Rep. Todd Prichard, D-Charles City, said.
“Using simple math,” Prichard said, he didn’t see any guarantee the state could balance its budget “when we are creating a $300 million tax cut year-over-year for the next five years.”
Rep. John Forbes, D-Des Moines, said tax relief is not Iowans’ only priority.
“What I’m seeing here could have very detrimental impact on us being able to provide vital services,” such as clean water, mental health services and adequate funding for education and other vital state services, he said.
In what Reynolds called the “most significant tax reform package in decades,” the governor proposed cutting Iowans personal income taxes by $1.7 billion over six years, revamping rates by phasing out federal deductibility and equalizing sales tax collections by treating Main Street and online businesses alike.
The governor’s plan seeks to cut income tax rates by 23 percent, resulting in $1.7 billion accumulated relief by 2023.
According to the governor’s office, state individual income tax cuts would total $290 million through tax year 2019, $296.4 million in 2020, $337.7 million in 2021, $377.8 million in 2022 and $448.6 million in 2023.
Iowa’s current nine personal income tax brackets would be reduced to eight, with the top rate of 8.98 percent to be reduced to 6.9 percent by 2023 and would only apply to incomes above $160,965. Currently, income above $73,260 is taxed at 8.98 percent.
The subcommittee hearing came on the heels of Iowa Senate majority Republicans passing a sweeping tax relief and simplification plan Wednesday they called a “bold” initiative that would cut individual and corporate income tax rates by $1 billion and would spur growth. Democrats warned they were riding “a bobsled to bankruptcy.”
The House is to consider its own bill.
Speakers representing tax relief groups, businesses and farmers welcomed the tax cut discussion. Noting that the state earned positive recognition earlier in the week for being the best-ranked state, Jennifer Kingland of the Iowa Taxpayers Association said being No. 1 in corporate taxing “is not a good thing.” Neither is having some of the highest individual income tax rates in the country, added Christopher Ingstad of Iowans for Tax Relief.
Iowa Chamber Alliance lobbyist John Stineman called the House bill “thoughtful” and “a great start.”
However, Brad Hudson of the Iowa State Education Association asked lawmakers to slow down because talking about tax cuts at the same time the state is cutting the current year budget is confusing Iowans.
“I ask you to show the kids of Iowa ... that they are more important to you than out-of-state corporate interests, than property or landowners, than the top 10 percent wealthiest Iowans,” he said. “Those are the groups who will benefit from this the most.”
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The 20 percent cut in state revenues will punish K-12 schools, the regents’ universities and community colleges and mental health, Democrats contend.
Subcommittee Chairman Peter Cownie, R-West Des Moines, said he plans no further action on the bill, which was introduced more than two weeks ago, until after March 16, the second deadline for legislation to be eligible for further debate.
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