ALTOONA – With a state surplus approaching $ 2 billion, a key Senate Republican has said his majority caucus is seeking a “moonlight” change in state tax policy, in the ultimate goal of eliminating income tax at some point.
Sen. Dan Dawson, R-Council Bluffs, chairman of the Senate Ways and Means Committee, told an Iowa Taxpayers Association forum Friday that key lawmakers and staff are exploring options to create “a model of 21st Century âwhich would place Iowa among the first American states with competitive tax codes.
âWe have the opportunity to do lunar tax reform here in Iowa,â said Dawson, who noted that Senate Republicans are considering a five-year reform initiative as a starting point.
“There is no reason why we should settle for mediocrity,” he told the taxpayer group. âSimplicity, transparency, competitiveness, this is our defining marker that we are putting forward. This is what we want to do when we reform our tax system, so the ultimate goal is to eliminate income tax.
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Currently, the state has over $ 1 billion in its taxpayer assistance fund, and Dawson said deferral funds could add an additional $ 1 billion to the surplus, meaning lawmakers are in a privileged position to bring about major political changes during the next session of 2022. months.
However, three other members of the forum – Rep. Lee Hein, R-Monticello, chair of the House Ways and Means Committee, and Democratic Senator of the House and Senate, Pam Jochum de Dubuque and Rep. Dave Jacoby de Coralville , senior member of the House Ways and Means Committee – took a more cautious view.
The three advocated for the return of surplus income to Iowa taxpayers while meeting budget obligations and revisiting policy discussions related to local property tax burdens and tax credits already on the books for corporations and various categories of taxpayers.
âIt’s an overpayment. It is their money. We will try to return it to the taxpayer, âsaid Hein. âThere are a multitude of ways to do it, from lower rates to lower property taxes – there are many different ways. “
At the same time, Hein said lawmakers need to be “careful” in how they deal with surplus dollars that are one-time resources.
Jochum noted that the state’s budget surplus was a by-product of some economic anomalies caused by the COVID-19 pandemic, including more than $ 9.2 billion sent to the state, local governments and individuals of Iowa as a unique relief infusion.
At the same time, she said, the state still faces financial challenges that include commitments requiring continued funding, such as the transfer of mental health programs from local property taxes to general government funds. State.
âWe have a number of budgetary issues that are coming to an end in the next few years,â Jochum said. âWe have to take the fiscal position into account when dealing with any kind of tax reform to make sure that as that federal money starts to disappear, as a state we can maintain what we have already started. “
Jacoby noted that other states that have reduced or eliminated their income taxes have had to make up for lost income by increasing their taxes or selling costs or by taxing their main domestic product.
North Dakota, he said, taxes its booming oil fields and other states with major entertainment and taxes out-of-state visitors, which Iowa won’t. able to do.
“I would love to get rid of the income tax,” Coralville Democrat said. âIf we eliminate all income tax, the equivalent would be that the sales tax should be at least 14.5%, and there should be a sales tax on food in Iowa. “
Legislative Democrats have said they would like state lawmakers to review all current state-offered tax credits, which stand at nearly $ 550 million, as part of any discussion of the tax policy and fully fund existing property tax credits available to homesteads, veterans, elderly / disabled and farmland. , who generally do not receive their annual allowances from the state.
Asked by members of the Iowa Taxpayer Association if the legislative discussion would include cuts to the state’s corporate tax rates, Dawson said Senate Republicans would be “a willing partner to significantly lower tax rates. companies “.
But, he added, “I have no interest in lowering current corporate rates without substantially reforming some of our incentives and credits.”
Dawson said the session’s primary focus would be bold changes in tax policy rather than general rate cuts or one-off tax refunds that would represent “a lost opportunity,” given of the possible options presented by the state surplus.
Jacoby said his main concern heading into the 2022 session was more focused on social issues than fiscal issues, given that Iowa, like many places, faces a labor shortage and does not take measures to attract young people.
âI’m worried about some of the things we do at Statehouse that don’t encourage young people to move to Iowa,â he said. “I take it very personally when we talk about burning books or restricting women’s rights and things.”
On this weekend’s “Iowa Press” recording for Iowa PBS, Chris Hagenow, a former state lawmaker who is vice president of Iowans for Tax Relief, said the legislature had “a tremendous opportunity. Â»Pass major cuts in income tax rates. next session.
The surplus of over $ 1 billion in the taxpayer assistance fund and “about an additional $ 800 million at the end of the current fiscal year” indicate that “clearly the Iowans are paying too much. taxes, and so we need to reform this tax code to match this. We therefore believe that tax reforms should be permanent, structural and comprehensive for taxpayers in Iowa. “
However, Peter Fisher, a retired University of Iowa professor and research director for Iowa City-based Common Good Iowa, noted that the surplus is one-time money.
âI know many lawmakers have said many times that we don’t use one-time money for ongoing expenses or changes in the budget,â he said. âSo it seems unwise to say that we’re going to use a one-time surplus to pass permanent tax cuts.
âI think our take on taxes is that we need taxes to fund the services that the Iowans demand,â he said. âPeople want good schools, they want clean air, they want safe streets and workplaces, they want people to have access to food, to child care, to a safe place to work. affordable housing and health care.
âWe can’t pay for these things if we continually lower taxes and eliminate our ability to fund these services. “
Plans to eliminate Iowa’s income tax, he said, are “a recipe for disaster.”