Two Republican candidates for governor are rapping Democratic Governor Chet Culver and Democrats in the legislature for failing to allign Iowa tax law with federal changes. The decision means some Iowans who got refunds must pay money back to the state.
For example, flood victims who got federal tax breaks for disaster-related expenses thought they’d gotten similar breaks at the state level. Bob Vander Plaats, a Sioux City business consultant, says it means flood victims are being victimized, again, by the state.
"It’s an insult to injury when you tell flood victims, ‘Hey, we know you suffered a lot already, but here — pay back a little bit of your tax return,’" Vander Plaats says, "’You get to suffer a little bit more.’"
Christopher Rants, a Republican from Sioux City, is a member of the Iowa House who complained about this issue while legislators were in session earlier this year. Rants says this is a "nightmare scenario" for flood victims.
"You’ve got not just the cost of paying Iowa back, but they’re going to have the cost of paying their tax-preparers to file amended tax returns all over again," Rants says.
Vander Plaats says Democrats intentionally resisted alligning Iowa tax law with federal tax changes in order to collect about $56 million more in taxes.
"Some people may have to be paying back refunds that they have already gotten," Vander Plaats says. "I think it also shows a lack of communication between the legislature, the governor’s office and the Iowa Department of Revenue."
Federal changes let taxpayers claim deductions and exemptions for disaster-related expenses. There were also changes in business equipment depreciation and education-related credits and deductions. The Iowa Department of Revenue’s tax booklets made the assumption the Democratically-controled state legislature would adopt those changes, but it did not.
Rants says Governor Culver’s decision not to allign Iowa tax law with the federal changes is causing real pain.
"It’s not fair that those folks who were flooded out are today being punished for the fact that they listened and took the advice of their state government," Rants says. "Victims and their tax preparers were told: ‘Deduct your flood losses.’ Today they’re being told by the Department of Revenue: ‘No, you shouldn’t have deducted your flood losses.’"
Rants says this shows Governor Culver made bad decisions on tax policy that are harming Iowa flood victims, business owners and college students.
"The most eggregious I think are the flood victims who we’ve all talked about helping and we’re finding out now that Culver’s decisions are costing people serious money," Rants says. "People who’ve already paid to replace belongings; they got their tax return back; they spent that money and they’re being told now: ‘Nope. Sorry. The governor and the tax collector want you to give that money back to the State of Iowa."
Late Thursday, Culver’s office issued a statement. "The last thing our state tax laws should do is burden those who were victims of last year’s historic floods and storms, and the issue of adopting federal tax law changes to Iowa should be addressed," Culver said. "Therefore, I am taking two steps. First, I have directed the Department of Revenue to provide me with any and all options that may be implemented by executive action this calendar year. Second, I will be speaking with legislative leaders, from both sides of the political aisle, to address this issue in 2010 with the same bipartisanship approach that we gave to other disaster-related legislation."
Vander Plaats says this whole situation is another reason Iowa should adopt a ‘flat tax."
"This tax problem and this tax complexity did not happen overnight and it’s not going to get solved overnight," Vander Plaats says. "I think we need a C.E.O. who is going to keep the eye on the ball to make it completive, to make it family friendly, to make it flatter, to make it fairer and to make it simpler."
Both Vander Plaats and Rants have formed "exploratory committees" to begin raising money for a gubernatorial race with the goal of being the Republican who faces off against Culver in the 2010 general election.