Governor Terry Branstad is talking about pitching a plan to legislators that would offer Iowa taxpayers an alternative to deducting the federal taxes they pay from their state tax liability. “You can have the present structure or you can have, maybe, a flat rate that doesn’t have as many deductions,” Branstad suggests.
The governor isn’t saying what the proposed flat tax rate might be. “We’re running models and looking at it, so we don’t the actual rate would be,” Branstad explained. “A lot will depend what happens at the federal level.” If Bush-era tax cuts are allowed to expire at the end of the year, Branstad said federal taxes would go up, so Iowa taxes would go down.
Currently, Iowa’s top marginal income tax rate is 8.9-percent. It dips into the 6-percent range once federal taxes are deducted from a taxpayer’s state liability. Branstad stressed he’s not committed to proposing the flat tax plan and he’s still looking at “all options.”
“We think maintaining the option of having federal deductibility or giving the taxpayer the (flat tax) choice…it kind of gives the taxpayer the best of both worlds,” Branstad said.
The governor floated the idea earlier this week in a meeting with members of the Iowa Partnership for Economic Progress.