DES MOINES — Iowa’s road to a state tax overhaul leads through Washington, D.C.
The two chairmen of the Iowa Legislature’s tax-writing committees, who were at the Capitol this week gathering information on tax credit programs that could be part of a major overhaul of the state’s income tax system, say the effort is contingent on what federal lawmakers do.
“I’m on the edge of my seat waiting for Washington,” said Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, who is among those monitoring work by Republicans in Congress and the White House in pulling together an overhaul of the federal tax code.
Changes made at the national level could affect the state’s fiscal position given that Iowans can deduct their federal tax liabilities from their state income taxes.
Lower federal taxes would reduce the amount Iowans could deduct from their state returns — which in turn would mean a windfall for Iowa’s treasury.
“It’s going to make a lot of difference. If Washington comes up with a significant tax decrease, that’s going to mean — if nothing changes — Iowa is going to have more available revenue because of federal deductibility. So, yeah, we’re anxious to see what happens there,” Vander Linden said.
Republicans who control the Iowa Senate and Iowa House with comfortable majorities and GOP Gov. Kim Reynolds are in the process of formulating their agenda for the 2018 legislative session, which they have indicated will have revamping Iowa’s tax code as one of its key items if Congress acts in time.
“There’s a lot of uncertainty, a lot of gray area right now. I think everybody’s goal is to do whatever we can to help stimulate our economy and to always put more money in people’s pockets,” said Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee.
“There are a lot of things that are predicated on what can be done and what can’t be done,” he added. “Obviously, we have to look at what the feds do and we also have to look at the revenue currently coming into our state and what the expenditures are.”
The state Revenue Estimating Conference set a preliminary growth forecast in October for fiscal 2019 state tax collections at nearly $7.43 billion. The panel meets again Dec. 11 to finalize the official level available for budgeting by the governor and Legislature next session.
Sen. Pam Jochum, D-Dubuque, ranking member of the Senate Ways and Means Committee and a member of the Legislature’s Tax Expenditure Committee that met Monday to review state tax credit programs, said she has heard Statehouse Republicans plan to pursue a tax package next session, but details have not been made available.
“The question is: is it a reform package or is it a cut package, because there is a difference. If you’re going to reform a system, then you’re going to make sure that people who are paying a higher percentage of their income in taxes actually see a reduction; and that credits and taxes that aren’t working in the way that they were designed to, then do we have the courage to get rid of it?” asked Jochum.
Another question is how tax changes fit into a fiscal situation where state government already has had to borrow from its reserves because tax receipts are growing less than expected.
“The bottom line is, are we going to have the money to continue to invest in our children’s education, in their health care and in public safety in our neighborhoods?” she asked. “To me, those should be our first priorities and from there you reform a system.”