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ITR comments on ‘flat tax’ bill in House

Tax CutsBy Iowans for Tax Relief

 

Last week the House Ways and Means Committee passed House Study Bill 215 (now House File 604), which would give taxpayers the option of filing under the current Iowa income tax system or filing under a new 5% flat-rate tax system. The bill is now eligible to be considered by the House of Representatives, which we believe is likely to pass it.

Iowans for Tax Relief supports the concept of this bill.  We believe the state should allow taxpayers to choose between the current complex income tax code with its many deductions, and a very simple flat-rate tax with almost no deductions.  However, if this choice is offered, safeguards are needed to ensure that both options will continue as long as Iowa has an income tax and that the complex tax code will continue to include taxpayers’ right to deduct all their federal income taxes on their Iowa return.

Federal deductibility is a basic principle of fairness.  A tax on a tax is wrong.  The state must never be allowed to tax the money the IRS takes out of your paycheck before you even see it.   Past studies have shown that the loss of federal deductibility would hurt some Iowans in every tax bracket.

There is grave danger that if Iowans are allowed the choice of two tax options, a future Legislature may be tempted to either (1) repeal the complex tax code option and force everyone into the flat tax even though it would raise taxes for a majority of Iowans or (2) keep the complex tax code option but raise taxes by repealing federal deductibility.

Iowans for Tax Relief will work to amend House File 604 to require that the flat tax option will continue only as long as both options remain available to all Iowa income taxpayers and full federal deductibility remains in the complex tax code option.

Iowans for Tax Relief is registered “undecided” on this bill. We will gladly support and work for it if protection for federal deductibility is added.

 

Iowa’s Budget

While many newspaper headlines last week focused on the debates over education funding and the collective bargaining process for school district employees, another important step in the Legislative process occurred on Thursday.  Iowa’s Revenue Estimating Conference presented a revised $7.16 billion tax collection projection for the upcoming fiscal year 2016 which will begin July 1, 2015.  That means the total amount of money available for next year’s state budget is reduced by $19.1 million from previous estimates.

Iowans for Tax Relief encourages our Legislators to craft a state budget lower than the Governor’s proposed budget, which, if enacted, would increase the state’s spending by 5% from fiscal year 2015.