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Beer money: the fix for the federal deductibility bill

April 09, 2009

Finally we may have the details of the "improvements" to the bill to repeal Iowa's deduction for federal taxes paid. An amendment (H 1484) is available this morning for HR 807. I assume this is the leadership bill, as it is sponsored by House Ways and Means Committee Chair Shomshor.

If this is how they "improve" the bill, I'd hate to see how they'd make it even worse.

The amendment does three things:

- It increases the standard deduction to $2,710 (from $1,750) per taxpayer;
- It slightly increases the rates for brackets for 2009 over the amounts in the original bill starting at $5,628 of taxable income (but not the top bracket);
- It provides a refundable $100 tax credit for Iowa resident undergraduate students - but not for their parents. Refundable credits are cash subsidies - you get the money even if you have no tax.

In other words:

- A tax cut for non-itemizers.
- A tax increase for itemizers.
- Beer money!

It does nothing to fix the biggest flaw in the bill: the increase in the state's highest effective marginal rate. But it will give my kid $100 whether he goes to school in Iowa or elsewhere this fall, and by golly, that's what this state really needs.

Tags: federal deductibility.Iowa tax policy.