Democrats in the legislature appear poised to pass a sweeping tax plan they say will either reduce or keep taxes the same for two-thirds of Iowans. The plan also does away with a tax break that allows Iowans to deduct their federal income tax bill from their income before calculating their state income taxes. Critics say that deduction makes Iowa’s top income tax rate appear higher than it really is.
Iowa Taxpayers Association president Ed Wallace says his group isn’t ready to oppose or endorse the Democrats’ plan as they hasn’t seen the details in writing yet. But Wallace says, in general, the 150 businesses that are members of his group support getting rid of this tax break, commonly called "federal deductibility."
"The elimination of federal deductibility leads to a more simple and transparent tax system for those companies that we’re trying to recruit here to Iowa," Wallace says.
The group "Iowans for Tax Relief" shot down former Governor Terry Branstad’s attempt to get rid of the tax break in 1986 and Iowans for Tax Relief president Ed Failor, Junior, vows a spirited fight this year. "For the first time ever, if this proposal goes through, Iowans will be taxed on the money that’s withheld from their paychecks by the federal government that they never seen, never have in their family budget — and now the State of Iowa’s going to start taxing you on that," Failor says. "That’s so inherently unfair."
Failor’s planning a sort of all-out public relations assault on legislators. "We are going to inform our 53,000 members. We’re going to inform folks who aren’t out members. We’re going to do radio. We’re going to do TV. We’re going to do direct mail," Failor says. "We are going to light up the mailboxes and the phone banks at the statehouse."
Failor maintains his group will be able to convince most Iowans that the tax change Democratic leaders unveiled yesterday is unfair. "And they responded well in the 1980s and we believe they’ll respond well here in 2009 and make sure their legislators understand that we do things in intelligent ways here in Iowa," Failor says. "We don’t just make cash grabs like this and get on the backs of taxpayers even further."
Democrats counter that they’re providing tax cuts to "middle class" Iowans while lowering Iowa’s top income tax rate from about nine percent to just under seven percent.