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 Iowans’ 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 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, plans to roll out a “really fantastic plan” by Senate Republicans today.
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 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” to 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.
The Senate plan goes farther, including 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.
The House plan:
- Increases the standard deduction from $2,070 to to $3,000 for single filers and $5,090 to $7,500 for couples.
- Reduces rates for all income brackets.
- Creates a small business deduction for 25 percent of the federal qualified business income.
- Makes additional federal tax code coupling changes.
The plan also taxes the “new economy:” Streaming services 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.”
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.