There has been quite a bit of discussion regarding the tax reforms passed by the Legislature this past session and signed into law by Gov. Kim Reynolds.
Senate File 2417 is a historic bill that will leave more money in the pockets of Iowa families and small businesses. Not surprisingly, the bill has been characterized inaccurately in the media and in ongoing political examination. Tax reform is a difficult issue that is too often demonized by opponents, and I feel it necessary to clarify the reasons behind the reforms and the facts within the bill.
This bill required a herculean effort so as to modernize our tax code. First, with regard to tax credits, the bill performed two major functions that will serve Iowans well. The Earned Income Tax Credit, our largest tax credit in Iowa totaling $69.6 million in 2017, is designed to help those with lower incomes. Senate File 2417 is coupled with the federal tax reforms on the Earned Income Tax Credit and will therefore create an easier tax system to understand and provide more dollars to the Iowans who need it most. Additionally, Senate File 2417 put into place significant reforms on the Research and Activities Tax Credit so that these dollars may go toward only real research in our state. If you are a proponent for reforming tax credits, you should appreciate this change.
Most would agree that our sales tax code needed to be modernized. More often than not, sales tax is not collected on the internet, and this has become an issue of fairness for our Main Street businesses that do pay sales tax. The Legislature voted to level the playing field, and I was pleased to see the U.S. Supreme Court recently ratify this decision as well. This will serve our economy and your state government well.
It is worth noting that none of these reforms would have been possible without the federal tax reforms last December. Lowering the federal income tax rate resulted in an increase in state income taxes for Iowans because of federal deductibility. Had we not acted, all Iowans would have seen a tax increase. This is unacceptable by any measure in my opinion. We lowered income taxes, while also making our corporate rate more competitive with surrounding states. On top of these reforms, federal deductibility will be phased out starting in 2022 so long as state revenues grow at 4 percent or more the prior year. This is a significant safeguard for your state budget.
When the plan is fully phased in, an Iowa family of four making around $50,000 per year will see their tax bill cut by more than half. That is a tax cut of nearly $1,000. That is real money Iowa families can use on groceries, put toward their kids’ college fund, replace an old washing machine or save for a rainy day.
I believe the single most important issue facing Iowa is population growth. We need to grow our population. We lost a member of Congress last census due to the fact that we are not growing as fast as other states. Taxes matter. Far too many Iowans and businesses leave our state due to our unfair and complicated tax code, and we are not able to attract the jobs and businesses we need to grow this state because of it. We simply could not afford to wait any longer.
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• Peter Cownie is a Republican state representative from West Des Moines and is chairman of the House Ways and Means Committee.