State tax plan cuts taxes for most

BY SHAWN GUDE | MARCH 27, 2009 7:35 AM

Middle- and lower-income Iowans would receive money back if a Democrat-backed tax proposal unveiled Thursday makes its way through the Legislature. One-third of Iowans would pay more in taxes under the plan.

Iowa is one of a handful of states that allows residents to deduct the amount they pay in federal income taxes from their income when calculating their state income-tax bill.

The plan would end that federal deductibility, using the $595 million it would raise for the tax cut. Those making under $125,000 would receive a tax cut, while individuals and small businesses in higher tax brackets would see their taxes go up.

Sen. Joe Bolkcom, D-Iowa City, portrayed the plan as a way to help families struggling in the midst of the economic recession.

“During the difficult economic times that we’re in, it couldn’t be a better time to give a middle-class tax cut,” said Bolkcom, the chairman of the Senate Ways and Means Committee. “The increases are going to go to people that can afford to pay a little bit more. The increases are, in my judgment, very modest.”

The proposal also includes an increase in the earned income tax credit, tax credits for the blind and elderly, and the child and dependent credit.

Some antitax groups, including the Iowa Taxpayers Association, support the concept of eliminating federal deductibility. The group’s president, Ed Wallace, was unavailable for comment.

But Republicans such as Sen. Brad Zaun, R-Urbandale, came out strongly against the change.

“It’s terrible,” he said. “I think what it’s going to do is it will severely hurt many small businesses in the state of Iowa. Second, it’s going to hurt a lot of taxpayers in the state of Iowa. I’m strongly opposed to this legislation.”

In addition, Zaun — who called it “the worst tax proposal that I’ve heard in the last five years” — framed the plan as disingenuous way to save the state money.

“I’ll believe the tax relief when I see it,” he said. “Here’s the bottom line … The real reason we’re doing this is to save the state money. And it’s going to be at the expense of all Iowans and all businesses.”

On average, a taxpayer making between $80,001 and $90,000 would receive around $60 back. Those making more than $250,000 would be hit the hardest under the proposal, seeing their taxes rise by almost $1,400 on average.

The plan’s chances are unclear, but the Democrats control both chambers of the Legislature and the governorship.

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