Gov. Terry Branstad has campaigned hard for a tax cut on corporate income, but hosts of other Iowans are also seeking their slice of legislative largesse under a string of tax breaks proposed this session. There's one for workout enthusiasts, another for coin-operated washing machine buyers, one to exempt taxes on sales of horses, and another for people who seek the help of an investment counselor. That's the small-change stuff. There's also a proposal to cut everyone's income taxes by 20 percent. Altogether, lawmakers have introduced roughly three dozen tax breaks. Members of both parties say that list will continue to grow. One longtime observer of the Legislature, Victor Elias of the Iowa Child and Family Policy Center, said he's "never seen the onslaught" of so many proposed tax breaks. Other examples: Triplexes would be taxed as residential property; teachers would get a tax credit on supplies they buy for the classroom; and people over the age of 65 would see their property tax assessments frozen. Republicans say the reductions are part of a long-term strategy to increase economic activity and resolve unfairness in Iowa tax law. Democrats point to initial revenue losses if the tax cuts are passed and ask how the state will pay for the cost of government in the meantime. Already, revenue lost because of tax breaks has mushroomed in recent years. In the fiscal year that ended June 30, 2007, tax credits cost the state $197.6 million in revenue. Five years later, in the current fiscal year, they are projected to cost $374.4 million, an increase of almost 90 percent. Rep. Tom Sands, R-Wapello, chairman of the House Ways and Means Committee, thinks the flurry of proposals stems from years of obstruction. "You've got Republicans in the Iowa House that have four years of pent-up frustration on tax policy that now all of a sudden are bringing forth more ideas because they think, 'Hey, now I've got a better chance of getting them passed,' " he said. Sands sees the big-ticket items like the business tax cuts as part of major reform and thinks they have the best chance of passage. Breaks such those for sales of horses are less likely to be considered, he said. In coming years, lawmakers will evaluate and possibly reduce or eliminate some of the individual tax breaks that have grown substantially, Sands said. Democrats have said they aren't opposed to considering tax cuts but that the discussion so far has failed to adequately address the potential revenue loss. "I think they just want to shrink the size of government, but then there would be no revenue to pay for essential services," Elias said. The most costly proposals include Branstad's proposal to cut the income tax rate for corporations in half; his proposal to cut business property taxes by 40 percent over five years; and the bill to cut all state income taxes by 20 percent. Those proposals would cost state government roughly half a billion dollars in revenue each year and grow to roughly $1 billion within two fiscal years, according to projections used by House Republican and Democratic staffs. House Democrats have estimated a group of the seven biggest tax breaks could wipe away as much as 30 percent of the $6 billion revenue in the state's general fund, the state's chief financial account. That reduced revenue comes at a time when Branstad has said the state faces $600 million to $700 million in budget shortfalls. "I'm not sure where the House ship is sailing," said House Minority Leader Kevin McCarthy, D-Des Moines. "On one hand, we have all kinds of tax-cut bills moving through the process. ... It's about $2 billion over the next few years that would be eliminated from the state of Iowa's budget. How is that even remotely fiscally responsible?" The $2 billion loss would be roughly the amount of money the state spends on human services - the programs that provide food assistance, child welfare and Medicaid benefits to tens of thousands of low-income families. Education and human services make up more than 80 percent of the general fund. Any substantial revenue loss or budget cut would almost certainly hit those areas, politicians from both parties and budget analysts have said. Senate Minority Leader Paul McKinley, R-Chariton, and others have criticized some of the tax breaks because he believes lawmakers are essentially choosing winners and losers. Sands said he doesn't know whether the Legislature will support efforts in future years to cut or end some of the individual tax breaks. Republicans control the House, 60-40, and Democrats narrowly control the Senate, 26-24. "I guess it comes down to the legislative branch and whether there is the appetite to do that," Sands said. "I will tell you the appetite is here in the House, but I'm not sure if it's there in the Senate." Senate Majority Leader Michael Gronstal, D-Council Bluffs, has criticized the proposed corporate tax cut because he believes education in Iowa will suffer. "Taken as a whole, the Republican budget basically says we're going to squander the opportunities for the next generation of kids in this state - in terms of education, in terms of access to community college and training programs - we're going to push that aside and say the most important thing is to make sure corporations have tax cuts," Gronstal said. |
Monday, February 7, 2011
February 5, 2011 Tax-cut proposal list gets lengthy By JASON CLAYWORTH jclayworth@dmreg.com
