Iowa House Democrats tried to add provisions to the House Republicans’ tax plan that would have provided tax credits in a range of areas including child care and emergency service volunteers, but the tax reform bill passed as is after a nearly two-hour floor debate Wednesday.
HF 2317 passed mostly along party lines, 60-38, minus two Democrats who supported the measure: Steve Hansen of Sioux City and Kenan Judge of Waukee. Two Republicans missed the vote.
The measure will move on to the Iowa Senate, which previously introduced its own tax reform bill.
HF 2317 is wide-ranging, but the part that affects most Iowans are the changes to the individual income tax code. HF 2317 would reduce the individual income tax rate in Iowa to 4% by fiscal year 2026. Starting in fiscal year 2023, the tax rate would drop to 6%, then 5.7%, then 4.82%, before hitting 4%.
As part of the proposal, revenues for the state of Iowa will decrease until Iowa takes in about $1.6 billion less in fiscal year 2028. To offset some of the losses, the plan would transfer $829 million from the state’s Taxpayer Relief Fund—a good portion of which is boosted by federal dollars—over six fiscal years starting in 2023.
During Wednesday’s floor debate, Democrats argued that the flax tax rate was not a fair rate—this was the argument made by House Republicans—but that it was another means to benefit wealthier Iowans at the expense of lower- and middle-income Iowans.
According to Rep. Sharon Steckman (D-Mason City), people who earn $10,000 annually would see a tax cut of $7 a year in the first year while people who earned a million dollars would save $13,662 annually.
“Quite a bit of difference there,” she said.
House Republicans said the bill was drafted under the premise of Iowa consistently gaining 3-3.5% in state revenues each year, something Rep. Dave Jacoby (D-Coralville) noted. He asked Rep.Lee Hein (R-Monticello) to confirm that for him, which Hein did.
“That’s my only question,” Jacoby said. “I do want to thank you and House Republicans for your full trust in President [Joe] Biden’s economy.”
Rep. Chris Hall (D-Sioux City) said this bill could lead Iowa into becoming the next Kansas.
Under a Republican trifecta in 2012 and 2013, the state of Kansas instituted major tax cuts in hopes of jump-starting its economy, but the experiment failed. The state’s revenues dropped drastically, which led to repeated budget shortfalls, mid-year program cuts, a lowering of the state’s bond rating, underfunded schools, and worse roads.
“The experiment with tax policy was such a failure in Kansas that a Republican-controlled legislature not only voted to raise taxes but did so over the veto of their own Republican governor,” Hall said.
Rep. Matt Windschitl (R-Missouri Valley) said this bill won’t be a repeat of Kansas and they’ve learned from the mistakes of the Sunflower State. Democrats and some economists have said less revenue will mean cuts to services including health care, public safety, and schools, but Windschitl seemed to rebut that argument.
“This is not going to stop us from still being able to fund the priorities of Iowan,” he said. “This merely means that we’re not doing that in a way where we have a bloated government bureaucracy and growing government at an unsustainable rate.”
UPDATE (Feb. 17, 2022, 2:55 p.m..): Rep. Bruce Hunter (D-Des Moines) accidentally voted for the bill, but changed his vote after.
UPDATE (Feb. 17, 2022, 9:40 a.m.): This story has been updated with the correct figures for Iowa’s projected revenue growth.
by Ty Rushing
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