Proposed Tax Cuts Would Disappear for Many Iowans by 2027

Nov 27, 2017

Republican proposals to overhaul the federal tax code would give most Iowa households a tax cut next year, but the cuts would phase out for many by 2027.

Iowa Policy Project Executive Director Mike Owen says the middle class, on average, would get a tax cut in the next fiscal year.

"As time goes on, the much-advertised middle class aspects of this, which are a very small piece of the puzzle, are going to go away," Owen says. "And the big breaks will remain in place for very wealthy millionaire, billionaire families and for wealthy corporations."

According to estimates from the Institute on Taxation and Economic Policy (ITEP), Iowans making less than $87,000 a year in 2027 could see a tax increase that year. Higher income households would continue to see tax cuts ten years out, with the largest tax cut going to the richest 1 percent of Iowans.

All income groups in Iowa could see a tax cut in 2019 under these proposals, but not all individuals would get a tax cut. According to ITEP, about 6 percent of Iowans might see a tax increase in 2019 because of changes to various deductions and credits.

It’s difficult to predict how much money an Iowa family might save or spend as a result of this legislation because it all depends on what tax deductions, exemptions and credits they use. Some of those will be changed or eliminated under these proposals.

Dave Swenson, an economist at Iowa State University, says the average household will have a bit more disposable income, which will go back into the economy.

"To a degree, it’s beneficial because of increased consumption or ability to reduce our debt," Swenson says. "So in the short run, it should be somewhat stimulative to the economy."

Swenson says the tax overhaul probably wouldn’t drive a lot of economic growth in Iowa. Swenson also says there’s no evidence that large corporate tax cuts will result in a specific number of new jobs in the state.

The proposed tax code overhaul is expected to add about $1.4 trillion to the federal deficit.

Swenson says in the future, that could come back to bite Iowa. He says the federal government may want to cut government programs to minimize those deficit increases.

"Even though they were caused by the tax cuts, they’re going to come at the expense of existing programs," Swenson says. "And Iowa is a state that depends on many many programs, to include agricultural programs, and many of these categories could be cut."

According to the Tax Policy Center, the House tax bill would increase economic growth, but not nearly enough to fill the gap in revenue created by the tax cuts.

A new congressional report found that while the GOP tax plan would add $1.4 trillion to the federal deficit over the next decade, it would not significantly increase long-term deficits. The Congressional Budget Office and the Joint Committee on Taxation say they didn’t have enough time to analyze potential economic growth as a result of the bill.

The U.S. House has passed its version of the tax overhaul, and the Senate is expected to vote on a bill as early as this week.