DES MOINES — Gov. Kim Reynolds unveiled a significant tax reform package Tuesday that seeks to cut Iowans personal income taxes by $1.7 billion by 2023, revamp rates by eliminating federal deductibility and equalize sales tax collections by treating Main Street and online businesses alike.
Calling her plan the “most significant tax reform package in decades," Reynolds said the plan she is presenting to the Legislature will provide immediate relief to middle-class workers, small-business owners, farmers, families and teachers across Iowa.
She said the plan is “making good” on the commitment she made in her swearing in address last May and again in her Condition of the State address in January.
“My plan combines meaningful tax relief while protecting our budget priorities,” Reynolds said in a statement. “We’ve prioritized tax relief for middle class taxpayers, small business owners, teachers and working families across the state. We’re long past due for real tax reform that simplifies and updates our system while allowing Iowans to keep more of their hard-earned money in their communities.”
The governor’s plan seeks to cut income tax rates by 23 percent, resulting in $1.7 billion by 2023.
For example, she said, the top rate of 8.98 percent will be reduced to 6.9 percent by 2023 and will only apply to income above $160,965. Currently income above $73,260 is taxed at 8.98 percent.
Along with lower rates, the governor plans to eliminate the alternative minimum tax and phase out federal deductibility – a feature that allows Iowans to deduct their federal tax liability from their taxable state income.
“The deduction of federal taxes from Iowa taxable income (known as “federal deductibility”) is a policy that once served a laudable purpose but over time has distorted Iowa’s tax code,” according to the press release issued by the governor’s office.
Among the plan’s features, Reynold’s office indicated:
• Middle-class Iowans would experience lower taxes-- a typical single mother with one child making $30,000 will see a 28 percent tax cut next year that would grow to 54 percent by 2023. A typical family of four making $55,000 will see a 10 percent tax cut next year, growing to 23 percent by 2023; and a typical family of four making $70,000 will see an 8.7 percent tax cut next year growing to 20 percent. By 2023, they'll see a 20 percent cut.
• In 2019, the standard deduction will increase from $2,070 to $4,000 for single filers and from $5,090 to $8,000 for married filers and there will be an additional standard deduction of $1,500 for the elderly and blind in 2019, rising to $2,070 in 2021, according to the governor’s office.
• Iowans will -- for the first time -- be able to invest in section 529 plans tax-free for K-12 tuition, allowing for more choice in K-12 education. Also, Iowa will fully couple with the federal educator expense deduction, giving teachers’ greater tax savings when they purchase school supplies for their classrooms.
• Iowa business owners will be able to deduct 25 percent of the new federal Qualified Business Income Deduction from their Iowa taxable income, and the section 179 expensing limit will increase immediately from $25,000 to $100,000.
Reynolds noted that many Iowa’s Main Street businesses must collect sales tax, but many online, out-of-state companies do not so she proposed putting them on a level playing field with out-of-state corporations in recognition that the economy is changing and Iowa’s tax code needs to adapt to it.
“All increases in sales tax revenue for these online sales will be passed on to Iowans through greater income tax cuts, ensuring that the size of the state’s government is left in check,” according to the governor’s office.
DES MOINES — Business groups argued the pros and cons of legislation that cleared a Senate subcommittee Monday and that backers say is designed to bring Iowa in line with federal standards in providing them religious-freedom protections.
Members of a Senate Local Government subcommittee voted 2-1 to approve a bill that would provide a claim or defense to a person whose exercise of freedom is substantially burdened by government action. Senate Study Bill 3171 could create a “strict scrutiny test” for the courts to use in such cases.
Small business owners Dick and Betty Odegart said current state law provided them no protection when a gay couple asked them to make their facilities available for a same-sex wedding and reception that went counter to their religious beliefs.
“It’s not to take rights or freedom away from anybody,” Dick Odegart told the panel. “It’s to restore ours. Our system is very tilted.”
However, representatives of large companies, such as Des Moines-based Principal Financial Group, warned passage of the religious-freedom legislation would have a “chilling effect” on Iowa companies that conduct international business and to recruit skilled workers to Iowa.
In addition, Des Moines business leaders worried legislative action could jeopardize the city’s ability to qualify as a 2019 NCAA regional basketball site or land other major conventions.
“States that have gone down this road have had economic duress,” said John Stineman, executive director of the Iowa Chamber Alliance.
But Burlington Baptist minister Brad Cranston said 21 states have similar laws on the books and the federal standards date back to legislation signed by President Bill Clinton that “doesn’t pick winners and losers” but merely provides guidelines to the courts in cases in which people follow the dictates of their faith.
“This argument is worth having if we’re going to preserve our way of life,” said Sen. Dennis Guth, R-Klemme, in supporting the measure. But Sen. Rob Hogg, D-Cedar Rapids, advised a go-slow approach to altering Iowa civil rights statutes that he said have worked effectively for years.