Democrats in the Iowa Senate say they may push through a massive overhaul of the state’s income tax system and junk the practice of allowing Iowans to deduct their federal tax bill from their income before calculating their state income taxes.
"Clearly federal deductibility is a gigantic benefit to the wealthiest Iowans and some mechanism that would move away from that, simplify our tax code and give a break to middle class families is something that we’re very much interested in," Gronstal says.
Former Republican Governor Terry Branstad once proposed doing away with this particular tax break, but Republicans in the legislature helped defeat the idea. Early in former Democratic Governor Tom Vilsack’s time in office legislators talked about simplifying the income tax system, but in the end nothing was accomplished.
Gronstal suggests times have changed. "I think you have people that are more willing to take a look at those kinds of things in the legislature today," Gronstal says. "Because the middle class needs to be built in this state. We need to grow our middle class. You know Warren Buffett said a while back, talking about class warfare, and he said, ‘Actually the war is over; the rich people won.’ That’s how the tax code works in this country and we think it’s time to change it and make the tax code work for the middle class."
Senate President Jack Kibbie, a Democrat from Emmetsburg, says because of this specific tax break, Iowa’s income tax rates look higher than they are when compared to other states. "And that’s one of the deterrents for businesses coming to Iowa, is that high income tax rate," Kibbie says.
Republicans, like House G.O.P. Leader Kraig Paulsen of Hiawatha, are ready to fight the idea. "We’ll be ready to fight that tooth and nail," Paulsen says.
Senate Republican Leader Paul McKinley of Chariton says it’s no surprise. "When we have a tax and spend mentality that we have under the golden dome now and when you’re spending at the level that the Democrats and the governor are spending, you have to raise taxes," McKinley says. "…So what do you do? We tax Iowans twice."
Republicans like McKinley say Iowans should maintain the ability to deduct their federal tax bill from their income before they calculate their state income taxes. And McKinley scoffs at Gronstal’s call for middle class tax cuts. "I’m sure that they will try and sugar coat this will all kinds of rhetoric, but the fact remainds they have spent too much money, they have dug a hole and they have to raise taxes or fees to get out of that hole," McKinley says.
Kibbie, one of the Democratic leaders in the Senate, admits upper-income Iowans might wind up paying more to the state if the change in tax calculations is made. "I would probably pay more state taxes," Kibbie says. "But that’s an area we ought to look at."
Kibbie’s also interested in reviewing the $7 billion in state tax exemptions which are on the books, perhaps recinding some tax breaks. "I think any of these areas are open season and we ought to take a look at ’em," Kibbie says.
Click on the audio link below to listen to the morning news conferences held by Democratic, then Republican legislative leaders.