Republicans in the Iowa Senate are touting a plan that would cut individual income taxes by 15 percent over the next three years and get rid of a tax break Republicans have long fought to preserve. Senator Randy Feenstra, a Republican from Hull, revealed details of the plan at a statehouse news conference. “It is not just a whimsical idea,” Feenstra says. “This idea took a lot of time and effort and took a lot of time, meeting with a lot of people, to get it right.” Iowa income taxes were last reduced in 1997, by a 10-percent across-the-board cut. Feenstra says another income tax cut is long overdue. “What this plan does is it starts getting at the fact of reducing income coming into the state that is currently at a surplus,” Feenstra says.
The state has a more than 800-million dollar surplus today. Feenstra’s ultimate goal is to eliminate the state income tax, by reducing the number of products and services on which the state sales tax is not charged today. “Right now there’s 191 sales tax exemptions, so if you want to completely eliminate the income tax, that’s the method you’d need,” Feenstra says. “You’d have to go down that path.” The income tax plan Senate Republicans propose now would get rid of the tax break that lets Iowans deduct their federal tax bill from their income before calculating their state income taxes.
That change has long been opposed by Iowans for Tax Relief — an organization founded by a former Republican legislator — but Feenstra says that tax break is “complicated” and makes Iowa’s income taxes look higher than they are. “Is it a watershed moment? Yeah, probably, because what we’re trying to say is, ‘Hey, we want to reduce everyone’s income tax and we’ve got an idea,’” Feenstra says. “‘We’ve got a plan.’” Senate Democratic Leader Mike Gronstal of Council Bluffs rejects the G-O-P’s plan. “They’ve come up with a mechanism that massively benefits the richest Iowans. Warren Buffet will probably move to our state as a result of their legislation, but no one else will,” Gronstal says. “It’s a tax plan that hurts middle class families.”
Iowa’s current income tax system has nine rates or brackets, with a top rate of just under nine percent. The Republicans’ plan sets up a three-tier income tax system, with a top rate of five-point-six percent. Gronstal says that means wealthy Iowans would get a bigger tax cut than others. “It’s a tax bill that hurts the middle class in Iowa, makes them carry a greater portion of the load of taxes in this state,” Gronstal says. “That’s all their bill does: shifts taxes to middle class families.”
Republicans in the House have proposed a different approach to income taxes, something akin to a flat tax, but it also gets rid of that tax break Republicans have fought for decades to keep. House Republicans also proposed a tax rebate for every Iowan. Republican Governor Terry Branstad has said he’s focused on cutting commercial property taxes rather than income taxes.