Republicans in the Iowa Senate have unveiled a bill that would cut taxes for individuals and corporations in Iowa by $1 billion.
“This is just a unique opportunity that we have today to really put Iowans in the driver’s seat, especially after the federal tax changes that were made,” Senate Majority Leader Bill Dix, a Republican from Shell Rock, told Radio Iowa this morning. “…This just shines that beacon of opportunity on Iowa as a great place to grow.”
The reductions would be immediate — for tax year 2019 — and Dix said would see their income taxes reduced by 30 percent.
“(It’s) the largest decrease in income tax rates in state history,” he said.
The bill includes what Dix calls “indexing” that would keep reducing personal income tax rates gradually over time. Over a three-year period, corporate income taxes also would be reduced from 12 percent down to seven percent.
“It is a bold proposal, a proposal that will bring growth to our state,” Dix told Radio Iowa, “new opportunities for Iowans.”
Senate Republicans propose phasing out nearly all state tax credits and they would get rid of the state tax deduction for federal taxes paid. These moves, Dix said, will “dramatically simplify” the state’s taxes.
“It is an exciting day, an exciting day because one of the things that I actually promised voters in my district and the entire Senate Republican Caucus has promised to Iowans is that we would reduce their income tax,” Dix said.
Democrats who’ve been expecting a GOP tax cut proposal to emerge this year warn Iowa could wind up with huge state budget deficits like Kansas, where income taxes were cut in 2012. Dix said Kansas policymakers failed to “manage their spending.”
“We’re going to take that very seriously and not overspend,” he said.
This past fall, Republicans investigated sales tax exemptions and considered doing away with some of them. The proposal released today instead seeks to collect state sales taxes on every purchase possible — including from on-line purchases.
“The retailer is the one that is acting as the collector,” Dix said. “On the internet, those companies have not always acted in a manner to collect that tax.This would direct those companies to do so.”
Some retailers, like Amazon, have voluntarily begun submitting sales taxes to the state when Iowans make purchases online.
The tax plan Governor Kim Reynolds released last week called for phasing in tax cuts over a six-year period — with a trigger that would delay the cuts if the economy worsens and state tax collections drop. The Senate Republican plan does not include that limitation.
Randy Feenstra, a Republican from Hull, is chairman of the Senate Ways and Means tax-writing Committee. Feenstra said the Senate Republicans’ tax blueprint is the culmination of eight years of behind-the-scenes work.
“It was my goal to say: ‘How can we simplify the system?’…We also have some of the highest rates in the nation, so those two items pushed me to say: ‘Let’s create a comprehensive bill to not only simplify rates in individual income tax, but also corporate income tax,'” Feenstra said, “to make us competitive with the rest of the nation.”
Feenstra and other Senate Republicans are calling for either eliminating or phasing out most, but not all of the 120 state tax credits and deductions. The bill deals with the state sales tax, too. It would require any retailer with a presence in Iowa to collect the seven-percent state sales tax when making on-line sales. There’s a line on state income tax forms for individual Iowans to pay any sales taxes they owe for online purchases.
“I would love to think that in a perfect utopia people would fill that line out, however, we fully understand in most cases people do not,” Feenstra said during an interview with Radio Iowa. “We just want to make sure that tax is reflected at the point of purchase.”
State officials estimate at least $200 million worth of state sales taxes is not being collected from online sales today.
A subcommittee hearing on the entire bill is scheduled for early Thursday morning.
“I am confident that we are going to have dramatic tax reform,” Feenstra said. “I’m also confident that we’re going to have some simplification of our system.”
A spokeswoman for Governor Kim Reynolds issued a written statement, saying the governor looks forward “to working with both the Senate and the House to pass a bill that cuts taxes and does it in a fiscally responsible way.”
(This story was updated with additional information at 2:30 p.m.)