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Neighbors Growing Together | Sep 21, 2018

Iowa tax plan — and what’s not in it — debated at public hearing

Apr 10, 2018

DES MOINES — For much of a 90-minute public hearing Monday on tax reform and relief legislation, representatives of banks and credit unions skirmished over provisions that weren’t part of the proposal.

Banks, which are taxed on their profits, called for the end of the “free ride” credit unions enjoy under the state tax code. Representatives of credit unions, which are taxed on their reserves, said they pose no threat to banks, which have 90 percent of the market share in Iowa and are enjoying record profits.

“Things seem to be working,” said Joe Hearn of Dupaco, a credit union based in Dubuque.

But Dave Nelson of West Bank argued there is no justification for the tax “break” credit unions enjoy.

“When some don’t pay, the rest of us pay more,” he said.

The tax changes for credit unions were proposed by Senate Republicans but are not part of House Study Bill 671, which is based on GOP Gov. Kim Reynolds’ proposal. Conventional wisdom around the Capitol is that the credit union tax won’t survive negotiations between the Republican-controlled House and Senate and the governor.

HSB 671 is based on Reynolds’ proposal to cut state income taxes by $1.7 billion by 2023 while maintaining expected growth rates in revenue.

Her plan includes “triggers” that the governor said will act as safeguards in the event of an economic downturn or accelerate tax cuts if there is significant economic growth.

 

HSB 671 also would reduce the state’s nine income tax brackets to eight, with the top rate of 8.98 percent being reduced to 6.9 percent and applied only to incomes of more than $160,950, rather than the current $73,260.

 

It would increase the standard deduction in 2019 from $2,070 to $4,000 for single filers and from $5,090 to $8,000 for married filers.

 

Reynolds also called for phasing out the deduction of federal taxes from Iowa taxable income — known as federal deductibility. If it is not phased out, Iowans would see an automatic state tax increase as federal tax changes lower their tax liability.

 

Ending federal deductibility drew little opposition, but other parts of the bill were criticized by public employee groups, child and family advocates and the ride-sharing company Uber.

 

Education and social welfare programs already are underfunded, and tax changes that would reduce state revenue would further imperil the quality of life for Iowans served by those programs, Ann Discher of the Iowa Child and Family Policy Center said at the House Ways and Means Committee hearing.

 

“I see this as the moment Iowans will decide if we follow Kansas down that destructive path or continue our state’s pragmatic, traditional approach to governing,” Discher said.

 

There was a lot of talk about Kansas, as well as West Virginia and Oklahoma, where teachers have walked out because of low wages and school funding.

 

HSB 671 is “illogical” and “borders on insanity,” according to Brad Hudson of the Iowa State Education Association. The reduction in revenues would result in more “paltry funding” for K-12 schools.

 

“It’s clear your priority is to millionaires and out-of-state corporations,” Hudson said.

 

AFSCME members aren’t against cutting taxes, said Morgan Miller of the union representing state public employees, “but when facing a financial crisis, it’s dangerous and irresponsible.”

 

Business and industry groups were more supportive, because as Iowa Taxpayers Association lobbyist Jen Kingland said, the perception that Iowa is a high-tax state is an impediment to business development.

 

John Stineman of the Chamber Alliance called for corporate tax relief, too. The last time the Legislature addressed corporate taxes was in 1981 when it raised them, he said.

 

However, corporate taxes are part of a Senate GOP plan, but not included in HSB 671.

 

Lawmakers also heard about specific cuts, such as a solar energy tax credit that former House member and current Cedar Rapids City Council member Tyler Olson said has led to $160 million in capital investment in nearly 3,500 projects across all 99 counties.

 

Ahead of the public hearing, Iowa Democratic Party Chairman Troy Price said Reynolds’ “proposed revenue giveaways are the equivalent of trying to balance the family budget by quitting your job.”

 

However, Reynolds’ plan earned some support from one of her harshest critics — former Cedar Rapids Mayor Ron Corbett, who up until last week was challenging her for the GOP nomination for governor. He supported delaying corporate tax cuts until next year or beyond because corporations received significant relief in federal tax changes. Of more immediate importance, he said, is growing the Iowa workforce. Lowering individual income taxes would make the state more attractive to new residents, he said.

 

However, Corbett was not supportive of her taxes on the “new economy” — that is apps such as Netflix and Hulu that consumers receive through their phones, internet and cable services. They pay a 6 percent tax on those services, so a new apps tax would be double taxation, Corbett said.

 

Mike Owen of the liberal-leaning Iowa Policy Project also found some middle ground. Dealing with federal deductibility is important, he said, and urged lawmakers not to squander the opportunity to make the tax code fairer “to Iowans across the board without reducing revenues for critical services.”

 

Although the think tank neither opposes nor supports the bill, Owen said HSB 671 fails to address “rampant spending” on corporate tax credits and closing loopholes that could save the state $100 million “either to save us from further services cuts or to lower taxes on working families.”

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