ALTOONA - The No. 2 executive in state government told an Iowa tax group Thursday the state's income tax code is too complicated, too costly and in need of modernization to better address the demands and challenges of a rapidly evolving digital economy.
"The Iowa code needs to recognize that the marketplace is fundamentally different today," acting Iowa Lt. Gov. Adam Gregg told the Iowa Taxpayer Association's annual meeting. "We didn't have a 'Cyber Monday' 100 years ago."
Gov. Kim Reynolds is assembling a 2018 legislative agenda — her first since being sworn in as governor in May — that seeks to bolster Iowa's competitive business climate in tax policy and skilled workforce, which are areas impeding growth, he said.
At the top of that list is addressing a 12 percent "published" top corporate rate that is mitigated by Iowa's single-factor and potential to be deducted from federal taxes. But the rate creates "sticker shock" for companies seeking to locate or establish a "nexus" in Iowa, Gregg said. Similarly, individual income tax rates rank high nationally with an 8.98 percent top threshold that effectively is around 6 percent when federal deductions are applied, but the complexities of both systems make Iowa less competitive, he said.
"I'm not really preaching to the choir, I'm preaching to the pastor here," Gregg told the ITA, the group that produced a 2016 analysis of Iowa's income tax system. He said the numbers indicate change is needed to "create a simplified system with lower rates."
He declined to provide specific changes that may be contemplated during the 2018 legislative session, noting that many factors hinge on the outcome of the federal tax package being reconciled between the House and Senate at the nation's capital.
"We're optimistic. You've got to be cautiously optimistic when it comes to action at the federal level. We've seen a lot of things that looked like they had momentum and ended up not getting done. But this appears to have some good momentum and I think hopefully some urgency to get it accomplished," Gregg said in an interview after the ITA meeting.
"We're watching federal tax reform very closely and that's going to have a very big impact on state revenue and the kinds of things that we're going to be able to do," he added, "so rather than getting out there and saying we're going to do x, y and z, I think it makes sense to monitor federal tax reform very closely and consider what that means for us."