Republican lawmakers who just wrapped up the 2017 legislative session this past weekend already list “tax reform” as their top agenda item for 2018. House Speaker Linda Upmeyer and other Republicans say they’re not ruling anything out at this point.
“Put it all on the table, sort it all out and see where we can land,” Upmeyer told reporters Friday. “But, hopefully, we’ll end up with a simpler system that makes us competitive.”
Republican Senator Randy Feenstra of Hull has been using computer models for the past few months to experiment with changes.
“We have the most complicated system in the nation and we have some of the highest rates in the system,” he said during an interview with Radio Iowa.
Iowa’s top tax rate for individual taxpayers is nearly nine percent. But it’s not nine percent when compared to how taxes are calculated in other states. That’s because Iowans get to deduct their federal income taxes from their income, before calculating how much they owe the State of Iowa. For the first time in decades – at the urging of key business groups – Republicans are seriously talking about getting rid of that deduction. Senator Feenstra warns, though, that the deduction has to be phased out.
“When you start getting rid of federal deductability, you can create a massive increase in taxes if you don’t do it in a targeted manner,” Feenstra said.
Feenstra, chairman of the Senate committee that drafts state tax policy, said delaying the debate about income taxes changes means legislators will find out what changes may be made at the federal level — because those changes may force adjustments in a state-level tax plan. Senate Minority Leader Rob Hogg of Cedar Rapids said he and other Democrats are wary of the GOP’s talk about tax reform, but not yet ready to say “no.”
“If they come out with a massive tax cut for wealthy people and corporations, that’s going to be a non-starter with us and we’re going to do everything we can to try to stop that,” Hogg told Radio Iowa. “If they have a real interest in tax reform that’s going to be bipartisan, that will help working families and middle class Iowans and make our taxes simpler and fairer, we will work with them on that.”
Democrats point to the experience in Kansas, where Republicans enacted major tax cuts five years ago and made 330,000 small businesses exempt from taxes. It has created huge state budget deficits and Kansas lawmakers are struggling to figure out how to fix things. Feenstra said Republicans in Iowa do not intend to follow the Kansas playbook when it comes to tax policy.
“They were not forward thinking of what could be the pitfalls,” Feenstra said. “You can’t do (tax reform) in one fell swoop in hope it works.”
Feenstra said Republicans in the Iowa legislature have another seven months to run ideas through computer models and come up with something that could simplify and reduce income taxes, but not blow a hole in the state budget.