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Iowa House, Senate Republicans release tax plans

senators jack whitver and dan dawson speak at the iowa capitol
Katarina Sostaric
Senate Majority Leader Jack Whitver and Sen. Dan Dawson unveiled their tax plan Wednesday.

Iowa House Republicans are joining the governor’s push for a 4 percent flat personal income tax.

Meanwhile, Senate Republicans are calling for a 3.6 percent flat tax and a sales tax shift to fund the Natural Resources and Outdoor Recreation Trust.

They both included Gov. Kim Reynolds’ proposed elimination of retirement income taxes and tax breaks for retired farmers in their tax bills.

The House GOP is not proposing changes to corporate income taxes, while the Senate GOP wants to lower corporate tax rates and phase out some business tax credits. Both differ from Reynolds’ plan to cut corporate rates over time depending on state revenue.

This sets the stage for tax negotiations three weeks into the legislative session, much earlier than last year when competing tax plans released in the spring delayed the end of the session by a few weeks.

House Republican tax plan

Iowa House Republicans released their tax plan Thursday, which largely mirrors Reynolds’ bill.

Both would phase in a 4 percent flat income tax over four years. According to the governor’s office, it would save the average family about $1,300 a year when fully phased in and would cost the state about $1.6 billion.

“I’ve been clear that we want to have something that’s simple as part of our tax plan, that’s sustainable as part of our tax plan, and something that works without having to raise any taxes,” said House Speaker Pat Grassley, R-New Hartford. “I think we have that bill—that we introduced today—achieves all of those goals.”

But the House GOP plan details how the Taxpayer Relief Fund would be used over time to help pay for these tax cuts.

That’s different from Reynolds’ plan, which does not tap into the Taxpayer Relief Fund. Her staff say the fund would act as a safety net if state revenue doesn’t grow at the average rate of the past 20 years.

“We want to get that back in their hands and get it back into the economy,” Grassley said.

The House Republican bill includes the same retirement income tax elimination and retired farmer tax breaks as Reynolds’ bill. That part would take effect in 2023, rather than in 2022 as a majority of House Republicans had proposed earlier this session.

House Minority Leader Jennifer Konfrst, D-Windsor Heights, said Democrats are working on their own tax plan focused on relief for the middle class.

“The latest GOP tax scheme will leave too many Iowans behind,” Konfrst said. “We don’t need more tax giveaways to the special interests, corporations and millionaires.”

Senate Republican tax plan

Iowa Senate Republicans released their tax plan Wednesday that would phase in a 3.6 percent flat personal income tax over five years, lower than Reynolds’ proposed 4 percent tax phased in over four years.

It would also establish a mechanism that could eventually eliminate personal income taxes. The Taxpayer Relief Fund would become the Income Tax Elimination Fund, which would trigger automatic tax cuts depending on the amount of money available in the fund.

Sen. Dan Dawson, R-Council Bluffs, said the bill meets the main goals of his taxation committee.

“One, was to return the money back to taxpayers that was clearly overcollected, two, to use that money when collecting it to build back a better tax code, three, what is our vision going forward,” Dawson said.

Senate Majority Leader Jack Whitver, R-Ankeny, said the 3.6 percent flat tax would save the average family $1,590 on their taxes each year when fully phased in, at a cost to the state of more than $2 billion.

“We want to put the meat of the tax cuts in this bill for the everyday Iowan that’s going to work every day,” Whitver said.

The Senate GOP bill would funding for the voter-approved Natural Resources and Outdoor Recreation Trust Fund without raising the sales tax in most communities.

About a decade ago, Iowa voters approved a sales tax increase of three-eighths of a cent to pay for water quality and outdoor recreation improvements. But state lawmakers never implemented the increase, and the funding was never provided.

Senate Republicans are proposing taking the local option sales tax statewide, taking a portion of that money to fill the trust, and sending state revenue back to the communities to make up for it.

A large majority of communities would not see a sales tax increase under this plan, according to Dawson and Whitver, but about 50 communities that don’t currently use the local option sales tax would see an increase in their sales tax from 6 percent to 7 percent.

“The Republican plan will benefit corporations and the wealthiest Iowans,” said Senate Minority Leader Zach Wahls, D-Coralville. “Democrats are focused on supporting hard work, rewarding work and not wealth, and putting more money in the pockets of hardworking Iowa families.”

The Senate GOP plan would lower the top corporate tax rate from 9.8 percent to 7.8 percent. It would also phase out some business tax credits, and Whitver and Dawson said they expect that to offset any potential cost to the state for reducing the corporate rate.

Reynolds’ spokesperson did not respond Thursday to a request for comment on the House and Senate tax plans.

Katarina Sostaric is IPR's State Government Reporter