The following is a legislative update from Rep. Linda Upmeyer of Clear Lake:
Late last year, Congress reformed the tax code at the national level, reducing federal taxes on Iowans by $1.8 billion per year. However, because we use federal deductibility in Iowa, our state taxes will actually increase as a result of the national reform. This is projected to cost Iowans an additional $107 million in tax year 2018 and grow to $153 million in tax year 2019.
When Congress cut taxes, they never anticipated this additional revenue to be used by state governments to increase spending and grow government. It is up to the Legislature to ensure that these dollars are returned to the Iowans.
This week, the House released the Middle Class Tax Relief Act, which will reduce Iowans’ state taxes by $1.3 billion over the next five years. Our plan puts middle class Iowans and families at the front of the line and prioritizes them to receive the biggest tax cuts, while also ensuring we can responsibly balance the state budget in future years. This plan is fair, sustainable, and modernizes our state’s tax code for the 21st century economy.
The Middle Class Tax Relief Act makes a number of important changes to Iowa’s tax code:
Significantly increases the standard deduction ($3,000 for individuals and $7,500 for families)
Puts middle class families first while reducing rates for all individual income tax brackets
Expands 529 education savings plans to include K-12 tuition
Increases Section 179 expensing limit to $100,000 in tax year 2018 and further increases it to $250,000 in tax year 2020
Makes a number of federal tax coupling changes
The plan we’ve proposed makes no changes to Federal Deductibility or the corporate income tax.
When the plan is fully implemented in 2020, Iowans will see their state income taxes reduced by almost 9%. Additionally, 90% of middle income Iowans will see a lower state tax burden as a result of this plan.
Here are a few examples of how everyday Iowans will benefit from the Middle Class Tax Relief Act:
A single taxpayer making $25,000 would see their tax burden reduced by 14.9%
A single parent with one child making $48,000 would see their tax burden reduced by 12.4%
A family of four making $52,000 would see their tax burden reduced by 14.4%
When coupled with the federal tax changes, Iowans will pay significantly less in taxes that they can use to save for their kids’ college education, replace an old refrigerator, pay off additional debt, or go on the vacation they’ve always dreamed of. The opportunities are endless.
One final aspect of our tax plan will ensure fairness in a 21st century economy by modernizing the state’s sales tax. Over the last two decades, Main Street businesses have been put at an unfair disadvantage as our economy has moved more towards internet sales and subscription services. This takes money out of our communities and has led to many local retailers closing their doors for good.
Now is the time to eliminate this unfairness and modernize our tax system for the new economy by:
Applying sales tax to online sellers like Amazon, Zappos or Wayfair
Applying sales tax to 3rd party sellers using online marketplaces like Amazon or eBay
Applying sales tax to products that have existed for decades, but are delivered in a digital format now
The revenue generated from these changes will be put directly into cutting Iowans’ income taxes.
The Middle Class Tax Relief Act is fair, sustainable, and modern. This plan is a win for all Iowans, but focused on the middle class and families who deserve real tax relief. I trust that Iowans know how to spend their money better than government. I am more than happy to leave more money in the pockets of hard-working taxpayers.
The Middle Class Tax Relief Act is based off of the plan that Governor Reynolds announced earlier this session. The Senate also has their own version of a tax reform plan. We are continuing to work with both the Senate and the Governor to find resolution on a plan to reduce Iowans’ taxes. I anticipate that changes will be made before a final version of tax reform is passed this session.
We are nearing the end of session, but please feel free to reach out to share your thoughts as we wrap up our work in Des Moines.
