On Wednesday Governor Terry Branstad will hold a ceremony in Hiawatha to sign into law the package of property tax breaks that cleared the 2013 Iowa legislature, but Branstad’s already thinking about tax proposals for next year when the legislature reconvenes in January.
“I think it’s very likely we’ll be looking at reducing the income tax further,” Branstad says. “When I became governor, the income tax rate in Iowa was 13 percent. We now have it down to 8.98 percent, plus we have full federal deductability…Remember, the top federal tax is 38.5 percent, so the effective rate in Iowa is only about 5.5 percent. We’d like to see that go lower.”
House Republicans have supported something akin to a flat tax for Iowa income tax payers, while Senate Democrats have favored ending the deduction that allows Iowans to deduct their federal tax bill from their income before they calculate their state income taxes. Critics say it makes Iowa’s income taxes look out of whack with other states, as only five other states have such a deduction. Branstad isn’t ready to say what approach he’ll favor for reducing income taxes.
“There’s different alternatives that we have looked at,” Branstad says. “…We’re going to have to study this further, but I think there’s a lot of interest and we see activity. I mean those states that really want to grow and attract business and jobs are looking at reducing the tax burden.”
Branstad made his comments this weekend during an appearance on Iowa Public Television.
Wisconsin’s legislature this year is considering a $651 million reduction in that state’s income taxes. In April Nebraska lawmakers cut state income taxes by $97 million. Kansas lawmakers last week approved a plan that keeps in place a higher state sales tax in Kansas, but the plan reduces income taxes. Missouri’s governor recently vetoed a $900 million cut in Missouri income taxes, saying the reduction would jeopardize funding for education and other public services and cause the State of Missouri to start writing “bad checks” just like the federal government does.
The neighboring state of South Dakota does not collect income taxes.