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Revised federal tax cut for Iowans: $1.775 billion

DES MOINES ? State revenue experts now project Iowa taxpayers will see their individual federal income tax liabilities cut by nearly $1.8 billion in the 2018 tax year, but the changes could mean they pay an extra $373 million over three years in higher state taxes due to Iowa's federal deductibility law.


Director Courtney Kay-Decker and analyst Amy Harris of the Iowa Department of Revenue on Friday revised their preliminary analysis of the federal tax reforms passed last year by Congress and signed by President Donald Trump would reduce overall income tax liabilities for 1,440,403 Iowa taxpayers by more than $1.775 billion. That was up from their initial run in January that projected federal taxes paid by Iowans would be lowered more than $1.538 billion.


The revised numbers estimate the average tax cut will range from $202 for 435,222 Iowans earning $20,000 or less up to an average cut of $3,288 for 327,234 Iowans making more than $80,000 annually. The average cut for 324,828 Iowans making between $20,001 and $40,000 was pegged at $655 and another 353,119 Iowans earning from $40,001 to $80,000 would see a 2018 tax year federal income tax liability reduced by $1,128, according to the revised revenue agency estimates.


Because Iowa is one of three states that allows its taxpayers to fully deduct their federal tax liability on their state income tax returns, revenue experts calculated that Iowa would collect an extra $33 million.


in the current budget year that ends June 30; an additional $148 million in fiscal 2019; and $192 million in additional state revenue in fiscal 2020 when the changes are fully implemented, according to the report. In January, those projections called for an extra $16 million in state revenue yet this fiscal year, $106 million in fiscal 2019 and $138 million in fiscal 2020.


The revised numbers are good news for Gov. Kim Reynolds and state lawmakers who are grappling with a projected $34.5 million state budget shortfall for the current fiscal year that ends June 30 and formulating plans to reform and reduce Iowa?s complicated income tax system by reducing rates and possibly eliminating the federal deductibility feature on state tax returns.


?It?s definitely a positive message,? said David Roederer, the governor?s budget director who also leads the state Department of Management and the Revenue Estimating Conference, which received Friday?s reports, ?but we also need to be very cautious.?


Roederer said the numbers are in line with what the governor projected in the state budget blueprint she laid out for lawmakers in January, and hopefully would give budget-makers ?a little more leeway? with a bigger ending balance in case this fiscal year?s revenue growth estimates should shift.


?I think it should give us all some confidence that the numbers aren?t going to drop from what the governor?s budget was looking at in January,? he told reporters after the REC meeting. ?That?s the positive side.?


Reynolds is expected to unveil her tax reform/relief plan soon and the projected higher state tax collections resulting from the federal tax cut will factor into what she proposes, Roederer said.


?The governor?s goal is that since Iowa state taxes would be going up because of federal taxes going down that she wanted to make sure that Iowans got that money back as well,? he told reporters. ?So that?s a key number as to how much we believe is going to be coming in so that you would know how much that you could be reducing.?


Kay-Decker said the revised numbers are ?still in the range of reasonableness? of the federal tax-cut effects but she added that some portion of Iowans? estimated tax payers appeared ?attributable to ?actual growth in income irrespective of the changes related to federal reform? while she took as a positive economic sign.


?I think the economic signals out there are generally good so hopefully that would mean that incomes are going to continue to increase,? she said.


The revenue agency analysis indicated Iowans statewide prepaid about $58.7 million in assessed property tax in December ahead of federal law changes while lowered their tax liabilities by $12 million for federal and $4 million for state but also means they will pay an extra $4.9 million in state taxes on their 2018 returns due to Iowa?s federal deductibility law.