Committee debate on competing income tax cuts

Shortly before six o’clock, the Iowa House Ways & Means Committee convened to consider HF 4, a bill that would reduce Iowans personal income taxes by 20 percent across-the-board. 

“(The bill is) relatively simple…but the economic ramifications are beneficial and dramatic and, at the end of the day, it will spur, I’m sure,  a vigorous philosophical discussion,” Rep. Erik Helland (R-Johnson) said to open the discussion.  “…It provides tax relief to over 1.2 million (Iowans) and over 100,000 businesses.  I think at the end of the day all of us agree we’d like Iowans to keep more of their hard-earned dollars and this is a step in that direction and a step towards putting Iowans back to work.”

Representative Dave Jacoby, a Democrat from Coralville, proposed a different tactic. “I’m excited about the idea (of this bill)…I think it would provide some tax relief to those most in need and those across-the-board,” Jacoby said.  “When we start having discussions later about bills and taxes that will affect pockets of people, this bill will affect everyone.”

Jacoby proposed an alternative that would cut taxes for those who earn $250,000 or more annually by five percent.  Those who earn between $250,000 and $20,000 a year would see their taxes cut by 40 percent.  Those who earn less than $20,000 would get a five percent cut under his plan (many income-earners in this category do not wind up owing state income taxes because of the earned income credit).

At this point Republicans and Democrats decided to meet privately to discuss the proposals, so Demorats went to a room across the hall and Republicans stayed in the committee room.  Reporters like yours truly and other observers (lobbyists) stood in the demilitarized zone, er, hallway while the private meetings/caucuses were held.

At about 10 after six the committee returned to open session to consider the Jacoby proposal. 

Helland spoke against Jacoby’s proposal.  He criticized the move to limit tax relief to five percent for those above $250,000 and target the cut to middle income Iowans, saying it would “peel tax relief away from small businesses…This proposal ends up hurting Iowans who need our help right now,” Helland said.

Jacoby countered that his proposal “targets truly small businesspeople” who are “just getting their feet wet” by starting a business in their garage or basement.  “It helps push people toward their dream of owning their own business or starting their own business,” he said.

Jacoby’s proposal failed on a party-line vote, 10-14. 

Now, discussion on the Republicans’ bill which would cut income taxes across the board by 20 percent.  Rep. Janet Petersen, a Democrat from des Moines, asked Helland what he’d say to taxpayers concerned about the cut in state support of preschool. “This is a little over three times what it could cost for the preschool program,” she said.

Helland said the previous governor (Chet Culver, a Democrat) and the previous legislature (Democratically-led) had “overpromised a program we can’t pay for.”  Helland revealed the bill would save Iowans $204 million in the coming year and in 2013 it will amount to a $704 million tax cut.  There is an explanation of the difference.  It’s a withholding issue.  Call the Department of Revenue for details; no one from the agency is at the meeting,  “I think they’re out to dinner,” Jacoby told the committee.

Helland said House Republicans intend to pursue property tax relief as well as the governor’s call to cut the top corporate income tax rate from 12 down to 6 percent as well as this income tax cut.  At that point, when all those tax cuts are in the mix legislators will be “having a greater macro-discussion about putting Iowans back to work,” according to Helland.

Rep. Roger Thomas (D-Elkader) said he’d voted for a 10 percent across-the-board cut in the 1990s “and I think it was the right thing to do and I think this bill goes in the right direction.”  Thomas, though, raised questions about what state budget plans may be and how this cut would impact spending.

“I want to assure to my constituents that we’re going to pass a budget that they’re going to be able to respect,” Thomas said.

Rep. Tom Sands, a Republican from Columbus Junction — chairman of this committee, spoke next, focusing on state budget plans.  “There are conversations going and open dialogue…Governor Branstad has proposed a corporate income tax cut…as well as a commercial property tax bill and we have went a little different direction on some of our taxes.  I think the goal is the same and that is to stimulate the economy, get the money back into private business, individuals’ hands…Yes, these are all moving targets and it is our goal to provide a balanced budget that the taxpayers of Iowa are proud of and can defend and part of that, in doing so, is job growth by lowering the income tax…A very high percentage of businesses actually file through individual income taxes…so this does help create jobs.  There’s no doubt about that.  This is just step one in that process…hopefully we’re headed in the right direction.”

Rep. Jeff Kaufmann (R-Wilton) spoke next, asking Helland how many small businesses would receive a tax cut.  (The answer, as Helland said earlier, is 100,000) 

“Can you look me in the eye and also tell me this is a middle income tax cut bill?” Kaufmann asked.

“Absolutely,” Helland replied.

Helland gave closing comments.  “(The) reality is this is a meaninful tax cut aimed at helping the maximum number of Iowans we could,” Helland said. 

The voting began at 6:35 p.m.  All the Republicans and all but five Democrats on the committee voted for the bill.  (The five no votes were from Democrats Isenhart, Kerns, Oldson, Petersen, & Willems.)