Governor Terry Branstad says he is “open” to making changes in the state’s income taxes next year.
“But I haven’t formalized any plans yet,” Branstad says. “I want to visit with legislators to see what is ‘the art of the possible.'”
Branstad says he might support ending a controversial tax break that makes Iowa’s income tax rates look higher than they actually are. Two decades ago, Branstad unsuccessfully proposed getting rid of that tax credit. It gives Iowans the ability to subtract what they paid in federal income taxes from their state tax bill.
“That was back when Iowans for Tax Relief really led the charge to keep that,” Branstad says. “The circumstances may have changed somewhat.”
The lobbying group’s influence in the statehouse has faded in the past several years and the founder of Iowans for Tax Relief died last fall. Another group called the Iowa Taxpayers Association released a study last month, making proposals to simplify the state’s income taxes — and getting rid of what’s called “federal deductability” tax break was at the top of the list. Branstad says Iowa is one of the “few states” that offer that deduction and it’s “an impediment” when trying to lure business to relocate or expand in Iowa.
“They look at what is the high marginal rate and they don’t take into consideration the federal deductability, so our effective rate is much lower than that marginal rate, so that hurts the perception of Iowa,” Branstad says, “Now, a lot of Iowans understand that because they are familiar with the Iowa tax, but a lot of companies from the outside, just looking at it, don’t realize that.”
While Branstad says this is a problem, he’s not yet ready to call for eliminating this tax break until he’s sure a majority of legislators would vote to take that step.
“I’m not one to tilt at windmills,” Branstad says. “I want to do things that can be accomplished and sometimes it takes more than one year to accomplish significant things.”
Branstad made his comments during taping of the “Iowa Press” program which will air tonight on Iowa Public Television.