A 4% income tax in Iowa is one step closer to reality. But hurdles remain for key GOP priority
Iowa House lawmakers have passed a sweeping tax cut proposal, sending one of their top legislative priorities to the Senate as the two chambers continue negotiating differences between their plans.
The bill, if enacted, would take Iowa to a 4% flat income tax rate and exempt retirement income from state taxes as well as certain income for retiring farmers.
House Republicans signaled the importance of the tax cut plan by debating it much earlier in the legislative session than usual — and during a busy week where most bills face a Friday deadline to advance through committees.
"We wanted to get this moving today," House Speaker Pat Grassley, R-New Hartford, told reporters following the vote on Wednesday. "Like I told you guys probably not quite two months ago, this was going to be the priority, and we showed that today."
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House Minority Leader Jennifer Konfrst, D-Windsor Heights, said Republicans had opportunities to consider Democrats' ideas when drafting and debating the proposal, but disregarded their input.
"This is a Republican tax proposal," she said. "And this Republican tax proposal helps the wealthy — helps them first, helps them most and helps them best. And that is not what we should be doing here in Iowa."
The House vote puts the ball in the Republican-controlled Senate's court to make the next move on tax cuts. Republican Senate leaders have proposed a more aggressive tax cut plan that would take Iowa to a 3.6% flat income tax rate and use future state budget surpluses to eventually eliminate the income tax completely.
The House, Senate and Gov. Kim Reynolds have other differences between their three plans, including whether to adjust the corporate tax rate or make changes to the sales tax. The House plan does neither. Reynolds has said everything is on the table.
More: Iowa Republicans have three plans to cut taxes. Here's how they compare.
Iowa Democrats say Republican proposal is 'not a flat tax'
The House bill's floor manager, Rep. Lee Hein, R-Monticello, called the 4% rate "a simple, responsible cut to all Iowans."
"It puts money back into the pockets of the taxpayers that paid it into the state in what I call an overpayment," he said.
Rep. Dave Jacoby, D-Coralville, called the proposal "a pseudo flat tax" because it keeps Iowa's current tax credits and deductions in place, which he said would allow wealthy Iowans to reduce their taxes even further.
"This is not a flat tax," he said. "What you’re proposing is basically a different tax table that incredibly favors the wealthy."
During Wednesday's debate in the House, Democrats unsuccessfully proposed several amendments to the bill, including seeking to maintain current tax rates for people making more than $1 million per year, and trying to increase the earned income tax credit and child and dependent care tax credit.
More: Democrats say 'working Iowans' would get increased tax refunds under their plan
Rep. Chris Hall, D-Sioux City, said Republicans are not focusing on issues Iowans are asking lawmakers to address, like the state's worker shortage and quality of life issues like affordable housing and recreational opportunities.
"Workforce, I thought, was the big issue that we were all talking about prior to coming to session," Hall said. "But now we see the House and Senate Republicans jockeying to see who can offer a more aggressive tax cut rather than paying attention to the laundry list of challenges that were expressed to us prior to session."
How much would the tax cuts reduce state revenue?
The nonpartisan Legislative Services Agency has estimated the House Republican tax plan will reduce state revenue by about $1.6 billion when it is fully implemented, and Democrats said the tax cuts could hurt Iowa's ability to fund government services. Iowa took in nearly $9 billion in revenue during the last fiscal year.
House Majority Leader Matt Windschitl, R-Missouri Valley, said Republicans have estimates showing the tax cuts will be sustainable and that conservative budgeting by Republican majorities has left Iowa in a position where it takes in more money than it spends.
"This is not going to stop us from being able to still fund the priorities of Iowans," Windschitl said. "This merely means that we’re not doing that in a way where we have a bloated government bureaucracy and growing government at an unsustainable rate."
More: Gov. Kim Reynolds has proposed a 4% flat tax. What would that mean for Iowa?
Stephen Gruber-Miller covers the Iowa Statehouse and politics for the Register. He can be reached by email at sgrubermil@registermedia.com or by phone at 515-284-8169. Follow him on Twitter at @sgrubermiller.
This article originally appeared on Des Moines Register: Iowa House approves 4% flat income tax; exempts retirement income
