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Commentary/Politics - Iowa Politics
Written by Lynn Campbell   
Friday, 03 April 2009 13:27
Debate of Federal Deductibility Takes Center Stage

Iowa parents, businessmen, students, advocates for low-income people, and others joined with state lawmakers at the Iowa Capitol this week in a spirited debate over the merits of eliminating the ability of Iowans to deduct federal taxes from their state tax liability.

Jeff Bean, a Cedar Rapids father of five young children, said during the public hearing that his family would pay $600 to $700 more under the legislation. Bean said he was irritated he had to take the time to come to the Capitol and defend federal deductibility.

"All we're doing is taking money from my family; my children and giving it to someone else," Bean said.

Trudy Caviness, an Ottumwa businesswoman, talked about her fears. "We would like to continue not to be taxed on tax," she said. "If we remove the federal deductibility, we may have to lay off some people. ... It looks like you're increasing the tax rates even though you are saying that we're lowering them."

Lana Ross of the Iowa Community Action Association, who said many of her clients are single parents who work at low-wage jobs, was among the handful who spoke in favor of the bill, which also increases selected tax credits.

"We commend this year's General Assembly for moving forward with this bill," Ross said. "The portion of the bill that we're excited about is Section 6, which increases the Earned Income Tax Credit from the current level of 7 percent to 8 percent and provides additional resources to hard-working, low-income Iowans."

During a subcommittee meeting, Andy Warren, state director of National Federation of Independent Business; Ed Failor Jr., president of Iowans for Tax Relief; Dave Roederer of the Iowa Chamber Alliance; and Ed Wallace of the Iowa Taxpayers Association spoke against the bill eliminating federal deductibility.

Failor called the reasons for eliminating federal deductibility disingenuous. He disputed assertions that the bill was about tax simplification, would make Iowa more attractive to businesses and would help middle-income Iowans. "We're going to take away your largest deduction," he said. "Doesn't make any sense."

Roederer congratulated lawmakers for recognizing the need to look at Iowa's tax structure, but encouraged them to look deeper at how they're treating higher-income Iowans, as well. With current federal tax rates, the bill would lower taxes for two-thirds of Iowans, but would increase taxes for most of those making more than $125,000.

Jan Laue of the Iowa Federation of Labor AFL-CIO and Victor Elias of Iowa Fiscal Partnership spoke in favor of the plan to eliminate federal deductibility.

"The way this one is being done, it is going to provide a tax cut to the vast majority of working Iowans," Laue said. "For too long, we have put too much emphasis on those at the top end, and they've been getting all the breaks."

Elias called the legislation "a good first step." He said the majority of Iowans would get some reduction in their tax rates, and Iowa's income tax system would no longer be tied to federal tax policy.

"I think if you recall, the last time we had a major income tax change in the law of this magnitude was in the mid-'90s. The vast majority of that benefit went to the top 20 percent of income earners," Elias said. "This is a balancing act going back toward the middle class. It holds up to our tax principles of fairness."

Republicans argued repeatedly that the plan outlined by Democrats to eliminate federal deductibility unfairly picks winners and losers.

"There are winners and losers in each bracket," said Representative Thomas Sands (R-Columbus Junction). "A high percentage of individual losers are in the lower brackets. We don't feel that it's right to pick winners and losers - all Iowans deserve to win."

According to Democrats' calculations, the changes in House File 807 would for tax year 2010 translate to 655,813 winners (48 percent) who would pay less tax, 220,493 who would see no change (16.1 percent), and 490,693 who would pay more tax (36 percent).