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IOWA HOUSE STAYS UP LATE, PASSES TAX CHANGES

June 04, 2003

Around 1:00 this morning the Iowa House of Representatives approved a reduction in state income tax rates over the next four years. The plan also includes a dramatic reduction in rates in 2007, coupled with the elimination of the deduction for federal income taxes - but only if an amendment to the state constitution requiring 60% approval of tax increases is approved.

The bill trims individual income tax rates across the board. The top current rate of 8.98% would fall to 8.82% in 2004, 8.48% in 2005, 8.15% in 2006, and 7.61% in 2007.

If the constitutional amendment is passed, the 2007 rate will instead 4.9%, and the current 9 brackets would be compressed to 3. Federal deductibility would be eliminated, but all other itemized deductions would remain in place.

GOOD NEWS FOR TAX PREPARERS. The bill appears to make no changes in Iowa's highest in the nation 12% corporate income tax rate, and it makes no other simplifying changes in our tax rules. It's nice that the Legislature looks after the interests of those of us who charge for tax advice by the hour.

WILL ANY OF THIS BE ENACTED? This bill mirrors a Senate plan approved last week. The proposal's fate remains uncertain, as the Governor has not committed to signing the bill. Its fate is tied to that of the economic development proposal also passed by the House last night. If the Governor finds the legislature's trimmed-back economic development proposal to be insufficient, he probably won't swallow a tax plan that has verly little support in his party. Nor will the Republicans swallow the Governor's ideal economic development plan without significant tax changes.

Here is most recent version of the income tax bill available on the legislature's web site (H. 1615, an amendment to HF 692). You have to scroll down to "DIVISION II" to get to the income tax portions of the bill.

The Senate convenes at 9:00 this morning, when they will presumably iron out any differences they have with the house. We will follow the situation today and post updates as they become available. You can follow the action at the General Assembly's website.

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