DES MOINES — House Republicans rolled out a plan Wednesday to cut Iowans’ income taxes by $139 million next year and $298 million in 2020.
The plan calls for an 8.9 percent state income tax reduction for the “average” Iowan, with 90 percent of middle class taxpayers seeing their state tax bill lowered.
The five-year impact will be to lower Iowan’s tax burden by $1.3 billion, House Speaker Linda Upmeyer, R-Clear Lake, said in announcing the “Middle Class Tax Relief Act.”
It’s a “wonderful good start” that focuses on providing middle class tax relief, she said.
According to House Republicans, a single taxpayer with an income of $25,000 would get a 14.9 percent reduction. A single parent with one child and an income of $48,000 would see a 12.4 percent cut, and a family of four making $52,000 would see a 14.4 percent reduction.
It’s been more than 20 years since the Iowa Legislature enacted significant income tax relief, the speaker said, “so it’s time that we take another look at this, review it and modernize it.”
Senate Ways and Means Chairman Randy Feenstra, R-Hull, who plans to roll out a “really fantastic plan” by Senate Republicans Thursday, also called tax relief a “generational event.”
“We believe that because of what the federal government did that we can simplify our system but also do some significant changes to help all Iowans with their income tax,” he said.
Tax relief has been a priority for legislative Republicans as well as GOP Gov. Kim Reynolds, who is up for election.
The concern has been that Iowans who stand to owe $1.8 billion less in federal taxes as a result of the U.S. tax overhaul would pay an additional $107 million in state taxes.
That’s because Iowans can deduct their federal tax liability from state taxes. With less to deduct, the added liability would grow to $153 million the next year.
While the House GOP plan is loosely based on the governor’s $1.7 billion tax relief proposal, it doesn’t touch federal deductibility or include her suggested “triggers” that would delay tax cuts if the economy shrinks or speed them up if there is significant growth.
The House plan also varies markedly from what Senate Republicans are considering.
“We’re giving everybody in Iowa a tax break. We’re helping out small business. It’s just a win for everyone,” Feenstra said of the Senate plan.
The Senate plan goes farther than the House plan in that it includes a corporate tax cut, and sunsets almost every tax credit.
House Ways and Means Chairman Guy Vander Linden, R-Oskaloosa, described the House plan as “certainly significant, but it’s also responsible in that we are going to make sure we’re going to balance the books.”
However, Rep. Dave Jacoby of Coralville, the ranking Democrat on Ways and Means, said the GOP plan doesn’t balance the budget and will mean more budget cuts.
“After Republicans just raised tuition, made millions in budget cuts and put $144 million on the state’s credit card, Iowans should be skeptical of any GOP tax scheme that costs $300 million,” he said.
Highlights of the House plan include:
• Increase the standard deduction from $2,070 for single filers and $5,090 for couples to $3,000 and $7,500;
• Reduce rates for all income brackets;
• Create a small business deduction for 25 percent of the federal qualified business income deduction from Iowa taxable income;
• Makes additional federal tax code coupling changes.
The plan also taxes the “new economy:” Streaming audio and video such as Netflix, Hulu and Spotify would be taxed beginning July 1. Online sellers, ride hailing services and digital goods would be taxed starting Jan. 1, 2019.
Upmeyer said House Republicans can accomplish their goals while continuing to allow Iowans to deduct their federal taxes from Iowa taxes. But Vander Linden said federal deductibility may be in the Senate bill, “so it’s not a dead issue.”
House Republicans scrapped the triggers in Reynolds’ plan because “triggers don’t always work just the way you would predict them to,” Upmeyer said.
Although the tax changes would result in $99 million less for the state general fund next year and $197 million less the following year, Upmeyer said spending will not have to be reduced and the Legislature will be able to fund priorities.
The House version doesn’t include the Senate’s changes in how banks and credit unions are treated by the tax code and doesn’t address corporate taxes.
“We think that’s something we can do at a later date,” Vander Linden said about corporate tax cuts. “The important thing is to get a tax cut to individual Iowans so they get the full benefit of the federal tax cut.”
The midweek unveiling of the House GOP proposal will allow lawmakers to gather feedback over the weekend, Upmeyer said.
“There’s no better place for Iowans to reach out than when folks are home on the weekend,” she said. “We can get a lot of good feedback and then we can build the bill even more if we wish to based on that feedback.”
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