The Iowa Capitol dome. (Photo by Iowa Capital Dispatch)
Iowa would accelerate planned tax cuts under a bill that won bipartisan support in the Iowa Senate Wednesday but may bump up against resistance both in the Iowa House and the federal government.
Senate File 576 passed unanimously. The bill could accelerate tax cuts approved in 2018 that currently are contingent on state revenue increases. It also would phase out the inheritance tax, which already does not apply in many cases where the recipient is a close relative.
The bill faces an uncertain future. House Speaker Pat Grassley, R-New Hartford, said last week it might be too “aggressive” to eliminate the inheritance tax at the same time the 2018 income-tax cuts could take effect.
In addition, the $1.9 trillion pandemic relief bill recently passed by Congress prohibits states from using the federal money to “directly or indirectly offset a reduction in the net tax revenue” or delays any new tax or tax increase.
“I think there’s a lot of unanswered questions that exist right now. I think first and foremost, we need to get an answer on what the feds passed, the states taking that money if you even have the ability to pass tax cuts,” Grassley said during a meeting with reporters last week.
Grassley’s comment came six days before Senate Democrats voted to back the GOP tax plan.
On Wednesday, Sen. Dan Dawson, R-Council Bluffs, pushed ahead on the legislation with sharp words for Congress and President Joe Biden, who proposed the $1.9 trillion plan.
“The federal government will not trounce over states’ rights and freeze tax policy for the next two years here in Iowa,” Dawson said.
Republican attorneys general in 21 states threatened legal action against the Biden administration over the tax-cut prohibition in the stimulus bill.
Sen. Pam Jochum, D-Dubuque, said the majority of Iowans who inherit money have family incomes of less than $80,000, making the legislation important for the middle class. She added the bill would eliminate taxpayers’ ability to deduct their federal taxes from their state income-tax return. The change would have the effect of making Iowa’s state income tax rate look lower when compared with other states’. Economic development groups have asked for that change for years. That will also happen automatically as part of the 2018 legislation if revenue growth is sufficient.
Jochum supported the bill despite her contention that the “timing is very off” because the Revenue Estimating Conference meets Friday. The panel might indicate revenue “triggers” have been reached to expand the 2018 tax cuts. “There is no reason we couldn’t wait until next week” to vote, she said.
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