By Tristam Pratorius
Iowa is the next in-line on the GOP chopping block. Several states, especially conservative western ones, have been part of this ‘’ongoing’’ experiment. Kansas is the most well-known of them all, but Oklahoma also dabbled in tax cuts and deregulation.
Recently, Republican lawmakers in the Iowa senate unveiled a tax plan they call the ‘’Iowa Working Families Tax Relief Act.’’ Right off the bat, what is interesting about this naming convention is that despite the name being centric to working-class individuals, the stated goal of the tax plan (even by Republicans) is to increase ‘’business competitiveness’’ and to cause a flux of capital into the state, rather than more directly benefiting average earners.
In response to Democratic criticism, Senator James Carlin (R) had to say this:
But Sen. James Carlin, R-Sioux City, said Iowa needs to revamp its income and corporate tax rates — which rank among the highest in the country — to grow and attract investment.
“It really is time to stop demonizing the people who pay the bills, create the jobs and invest the money that creates the opportunity. It’s time to stop demonizing people who are wealthy,” Carlin said. “The politics of resentment don’t help anybody except politicians on Election Day.”
Telling…his choice of words are very indicative of Republican priorities. Anyways, here are the primary things the bill does.
-Drops top tax rate from 8.98% to 6.3%
-Drops corporate tax rate from 12% to 7%
-Eliminates AMT for corporations and high-income earners
-Eliminates the ability of Iowans to deduct federal taxes paid on state returns.
-Bottom rate reduced from 0.36% to 0.33%
-Reduces the number of individual income brackets from 9 to 4.
Sounds like a good deal, huh. Well, there are a few caveats. First of all, it eliminates the ability of Iowans to deduct federal taxes paid on state returns. Second, the bill eliminates the tax-exempt status of credit-unions. Why is this change being made? Iowan banks lobbied for this. Smashing credit unions and intentionally choking smaller competitors definitely hurts lower income earners and the middle-class. The Des Moines register reports.
‘’But the proposal that drew the most discussion is a measure that would begin requiring credit unions to pay income taxes. Iowa banks have pushed for the change, arguing credit unions' tax-exempt status gives them a competitive advantage.
“I am here because the future of our locally owned community institutions are challenged by an antiquated tax law that has government picking winners and losers in the financial services marketplace,” said Peg Scott, CEO of Union State Bank in Greenfield, Iowa. “My bank — and most of Iowa’s 300 community banks — are much smaller and much less profitable than any of the big credit unions that would be subject to income tax under the language of the Senate bill.”
But assuming all this is true, Republicans have claimed as high as ‘’65%’’ reductions in taxes. That sounds wonderful! There is no way these ‘’caveats’’ outweigh the benefits of ‘’huge’’ tax reductions, right? This is the widely cited number, and the Republican legislators are acting ecstatic. In terms of federal taxes, this would be like someone in the 25% bracket paying around 9%. However, this doesn’t put things in perspective. State taxes, especially those in Iowa, are not nearly as burdensome as those paid to Uncle Sam.
According to analysis from the Iowa Department of Revenue, if you are making between $10,001 and $20,000 (solidly working class) you get a 51% cut and your tax savings will be, wait for it….$18 per year. I’m not saying that extra money is bad, but this is quite literally the bare minimum. The Republican party’s inner altruism is really showing here.
If you are making between $50,001 and $60,000 (solidly middle class), you get a 7.8% cut and your tax savings will be $156 per year.
And here is where it gets fun. If you are making $1,000,000 or more (really rich) you get a 19.4% cut and your tax savings will be $24,636.
While technically the savings from the Iowa tax cut (in pure percentage) are larger for lower earners, this tax cut is overwhelmingly slanted to the rich. This tax bill may be more progressive than Paul Ryan’s ‘’Tax Cuts and Jobs’’ Act, but ultimately, it’s still the same trickle-down (supply-side) dogma. Think about it. Iowa has around 18,000 millionaires (as of 2004) Think about where that approximately $432,000,000 in tax could go to. It could go to roads, to healthcare, to farm subsidies, to education. So many productive investments in Iowa are being defunded.
Finally, there is the elephant-in-the-room of total revenue costs and budget cuts. According to the Legislative Services Agency, this tax bill will cost $1.2 billion annually to Iowa. Considering that Iowa’s state budget is around 7 billion, this is definitely a classic example of a ‘’budget buster.’’ Similar to Kansas, this could force huge cuts in public services (cutting services hurts the economy). In addition, fiscal irresponsibility like this could cause a ratings downgrade similar to the one Kansas had. That means investors and businesses will flee from the state rather than enjoy the lower corporate tax rate and AMT cuts as theorized.
To prevent this disaster, just like with Kansas, the state Republicans will inevitably cut vital spending rather than undo their ‘’precious,’’ ‘’untouchable’’ tax law. Things like education and healthcare are on the chopping block. No matter how much you cut taxes, cutting public services can more than nullify the benefits.
Of course, the Iowa tax cut is definitely not as radical as the Kansas tax cut, but I see similar intentions and effects.