GOP leaders seek Iowa income tax ‘moonlight’


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The Iowa Capitol in Des Moines (The Gazette)

ALTOONA – With a state surplus approaching $ 2 billion, a key Senate Republican has said his majority caucus is seeking a “moonlight” change in state tax policy, in the ultimate goal of eliminating income tax at some point.

Sen. Dan Dawson, R-Council Bluffs, chairman of the Senate Ways and Means Committee, told an Iowa Taxpayers Association forum Friday that key lawmakers and staff are exploring options to create “a model of 21st Century ”which would place Iowa among the first American states with competitive tax codes.

“We have the opportunity to do lunar tax reform here in Iowa,” said Dawson, who noted that Senate Republicans are considering a five-year reform initiative as a starting point.

“There is no reason why we should settle for mediocrity,” he told the taxpayer group. “Simplicity, transparency, competitiveness, this is our defining marker that we are putting forward. This is what we want to do when we reform our tax system, so the ultimate goal is to eliminate income tax.

Senator Dan Dawson, R-Council Bluffs

Currently, the state has over $ 1 billion in its taxpayer assistance fund, and Dawson said deferral funds could add an additional $ 1 billion to the surplus, meaning lawmakers are in a privileged position to bring about major political changes during the next session of 2022. months.

More cautious opinions

However, three other members of the forum – Representative Lee Hein. R-Monticello, Chairman of the House Ways and Means Committee, and Democratic Senator of the House and Senate, Pam Jochum de Dubuque and Representative Dave Jacoby de Coralville, Member of the House Ways and Means Committee – took a more cautious position.

The three advocated for the return of surplus income to Iowa taxpayers while meeting budget obligations and revisiting policy discussions related to local property tax burdens and tax credits already on the books for corporations and various categories of taxpayers.

“It’s an overpayment. It is their money. We will try to return it to the taxpayer, ”said Hein. “There are a multitude of ways to do it, whether it’s lowering rates, lowering property taxes – there are a lot of different ways.

“It could be as easy as writing a check. We are planning to look at all the different options and we absolutely have to pay back some of this over-taxation. “

Representative Lee Hein, R-Monticello

At the same time, Hein said lawmakers need to be “careful” in how they deal with surplus dollars that are one-time resources.

“We have a challenge here on how to get the excess money back from the people who gave it to us in the first place,” he said. “There are a lot of different ways of doing it, but we have to be responsible for delivering it to these people and still be able to manage a budget responsibly.”

Pandemic dollars

Jochum noted that the state’s budget surplus was a by-product of some economic anomalies caused by the COVID-19 pandemic, including more than $ 9.2 billion sent to the state, local governments and individuals of Iowa as a unique relief infusion.

At the same time, she said, the state still faces financial challenges that include commitments requiring continued funding, such as the transfer of mental health programs from local property taxes to general government funds. State.

Senator Pam Jochum, D-Dubuque

“We have a number of budgetary issues that are coming to an end in the next few years,” Jochum said. “We have to take the fiscal position into account when dealing with any kind of tax reform to make sure that as that federal money starts to disappear, as a state we can maintain what we have already started. “

“This federal money will eventually disappear, and we are taking a lot of new spending measures that we need to fix. You can’t make that promise and then not pay it, ”she added. “We have to make sure that we come out of this pandemic well because it is not yet behind us. “

14.5% sales tax?

Jacoby noted that other states that have reduced or eliminated their income taxes have had to make up for lost income by increasing their taxes or selling costs or by taxing their main domestic product.

North Dakota, he said, taxes its booming oil fields and other states with major entertainment and taxes out-of-state visitors, which Iowa won’t. able to do.

“I would love to get rid of the income tax,” Coralville Democrat said. “If we eliminate all income tax, the equivalent would be that the sales tax should be at least 14.5%, and there should be a sales tax on food in Iowa.”

Representative Dave Jacoby, D-Coralville

Legislative Democrats have said they would like state lawmakers to review all current state-offered tax credits, which stand at nearly $ 550 million, as part of any discussion of the tax policy and fully fund existing property tax credits available to homesteads, veterans, elderly / disabled and farmland. , who generally do not receive their annual allowances from the state.

Corporation tax

Asked by members of the Iowa Taxpayer Association if the legislative discussion would include cuts to the state’s corporate tax rates, Dawson said Senate Republicans would be “a willing partner to significantly lower tax rates. companies “.

But, he added, “I have no interest in lowering current corporate rates without substantially reforming some of our incentives and credits.”

Dawson said the session’s primary focus would be bold changes in tax policy rather than general rate cuts or one-off tax refunds that would represent “a lost opportunity,” given of the possible options presented by the state surplus.

Jacoby said his main concern heading into the 2022 session was more focused on social issues than fiscal issues, given that Iowa, like many places, faces a labor shortage and does not take measures to attract young people.

“I’m worried about some of the things we do at Statehouse that don’t encourage young people to move to Iowa,” he said. “I take it very personally when we talk about burning books or restricting women’s rights and things.”

He said that one of his daughters, who lives in Nashville, told him, “Dad, I would go back to Iowa, but the way you treat women, I’m not going to go back. She says Tennessee is more progressive than Iowa.

To cut or not to cut?

On this weekend’s “Iowa Press” recording for Iowa PBS, Chris Hagenow, a former state lawmaker who is vice president of Iowans for Tax Relief, said the legislature had “a tremendous opportunity. »Pass major cuts in income tax rates. next session.

Chris Hagenow, Iowans for tax break

The surplus of over $ 1 billion in the taxpayer assistance fund and “about an additional $ 800 million at the end of the current fiscal year” indicate that “clearly the Iowans are paying too much. taxes, and so we need to reform this tax code to match this. We therefore believe that tax reforms should be permanent, structural and comprehensive for taxpayers in Iowa. “

However, Peter Fisher, a retired University of Iowa professor and research director for Iowa City-based Common Good Iowa, noted that the surplus is one-time money.

“I know many lawmakers have said many times that we don’t use one-time money for ongoing expenses or changes in the budget,” he said. “So it seems unwise to say that we’re going to use a one-time surplus to pass permanent tax cuts.

Peter Fisher, Common Good Iowa

“And it is also a surplus, which is the result of an underestimation of income.

Because Iowa has a budget surplus “doesn’t mean we have a permanent surplus, and that’s not a good reason, again, for more and more tax cuts, which is a story recent across Iowa, ”he added.

“I think our take on taxes is that we need taxes to fund the services that the Iowans demand,” he said. “People want good schools, they want clean air, they want safe streets and workplaces, they want people to have access to food, to child care, to a safe place to work. affordable housing and health care.

“We can’t pay for these things if we continually lower taxes and eliminate our ability to fund these services. “

Plans to eliminate Iowa’s income tax, he said, are “a recipe for disaster.”

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