DES MOINES ? Majority Senate Republicans unveiled a sweeping tax-relief plan Wednesday that will cut individual and corporate income tax rates 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 called the plan a bold approach that simplifies Iowa?s complicated system, improves the state?s competitive position and delivers ?probably the largest tax cut in history.?
The plan, called the Iowa Working Families Tax Relief Act, seeks to eliminate the 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 will be lowered from 8.98 percent to 6.3 percent and the corporate income tax rate will come down from 12 percent to 7 percent. The number of brackets will be compressed from nine rates to five with Iowans in the $45,000-a-year income range seeing 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 will be reduced to two rates of 7 percent 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. ?Iowa families deserve to have more of their hard-earned money in the pockets.?
Senate Majority Leader Bill Dix, R-Shell Rock, said the changes are aimed at rewarding work, encouraging investment and giving job creators the confidence to create career opportunities for Iowans. ?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 tax-reform 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 Main Street and online businesses alike.
Reynolds? spokeswoman Brenna Smith said the governor and her staff are studying 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.?
Reynolds looks forward to working with lawmakers to pass a bill that cuts taxes and does it in a fiscally responsible way, Smith added.
Making the state?s tax code more competitive also will reduce the need for business tax credits that have become a favorite target of legislative Democrats, Feenstra said. Many of the business tax credits will 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 Iowa Tax Expenditure Committee will be directed to reshape the future of Iowa?s tax credit, according to the Senate GOP plan.
Dramatically simplifying Iowa?s tax code by aligning state taxes with federal tax provisions will make Iowa ?one of the most tax-friendly states in the nation,? Feenstra said. ?We?re trying to get to an over-sized postcard? for Iowa?s state return rather than the current maze of tax deductions, exemptions and credits, he added.
The Senate Republican plan also seeks to modernize Iowa?s sales tax to protect Main Street businesses by expanding the definition of ?nexus? to so more online retailers are subject to sales taxes as a level playing field. Feenstra estimated the change could generate an extra $120 million to $140 million in revenue for the state treasury.
Another feature 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 files and $12,000 for couples to $12,000 single 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 making $33,000 a year will see a 65 percent tax reduction, a single taxpayer making $40,000 a year will experience a 16.4 percent reduction and a married couple with two children making $48,000 annually would have their state tax liability cut by 20.5 percent.
?I?m just excited to come out with a complete rewrite of the tax code that reduces taxes by $1 billion, gives every Iowans approximately a $1,000 reduction in their taxes, it dramatically simplifies the system and will allow for easy preparation as we move forward,? Feenstra said.
?The state of Iowa has had the most complicated system in the nation and now we have one of the best systems in the nation and we?ve dramatically lowered rates,? he added.
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 devising a third tax-cut proposal. Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, has been studying various tax cut ?runs? provided by the state Department of Revenue and has been consulting with senators and the governor?s office about prospects moving forward.
?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 on their state returns and equalizing sales tax collections to capture more online sales so there are elements of agreement with Senate Republicans.
?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 said.
?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,? she added. ?In fact, Kansas abandoned failed trickle-down tax cuts and Oklahoma?s Republican Governor is actually proposing higher taxes to dig her state out of a fiscal mess.?
Rep. Dave Jacoby, D-Coralville, ranking member of the House Ways and Means Committee, sounded a similar cautionary note, saying any tax system overall would have to occur within the context of a balanced state budget while providing relief for middle-class Iowans in a way that was simple and fair.
?With a $1 billion price tag every year, I?m extremely skeptical that the state can afford this plan without making the state?s budget crisis even worse,? Jacoby said. ?We?ve seen the devastating reality of similar tax cut plans passed in other states like Kansas.?
The difference there, Dix noted, is that Kansas policymakers failed to ?manage their spending? while Iowa Republicans plan to learn from that experience and ?not overspend? in the process of allowing Iowans to keep more of their money now going to taxes.