Public Policy Update: Governor Reynolds Tax Reform Proposal Released

Feb 16, 2018

UPDATE: Feb. 21, 2018
Senate Republicans announced their own tax reform legislation. SSB3197 also includes corporate tax reform and changes to the state’s tax credit programs. As this, and the House version continue to take form, the Economic Alliance will remain diligent in our advocacy efforts to achieve meaningful tax reform that makes Iowa competitive and realizes economic growth. Click here to read more about the Senate’s tax proposal.


Tax Reform Proposal Released
Governor Reynolds’ long awaited tax reform legislation (HSB671) was released. Highlights include:

  • Rates will be cut by up to 23 percent, resulting in $1.7 billion by 2023. For example, the top rate of 8.98 percent (fourth highest in the nation) will be reduced to 6.9 percent by 2023 and will only apply to income above $160,965. Currently income above $73,260 is taxed at 8.98 percent.
  • Sales tax from online sales will return to Iowa.
  • The Alternative Minimum Tax will be eliminated.
  • Federal deductibility will be phased out.
  • Small businesses owners will be able to deduct 25 percent of the new federal Qualified Business Income Deduction from their Iowa taxable income.
  • The section 179 expensing limit (known as depreciation) will increase immediately from $25,000 to $100,000.
  • No changes to the corporate tax structure or any state tax credit programs.

Republicans in the legislature have said the governor’s proposal is a good starting point to continue moving forward with reform. The Economic Alliance has long advocated for meaningful tax reform. We, along with input from our Tax Reform Working Group and all members, will continue to work with legislators for a tax code that makes Iowa competitive and realizes economic growth.

First Funnel Week Ends
Friday, Feb. 16 marked the end of the session's first of two "funnel" weeks. A "funnel" is a self-imposed deadline that exists to make the session more manageable. All individually-sponsored bills, with the exception of budget and tax bills, must advance out of a committee in at least one of the chambers in order for them to still be consider this session.

Funnel week made for a very busy week as legislators scrambled to get bills passed out of committee dealing with a variety of issues. Bills that will advance include Future Ready Iowa, religious freedoms, school transportation equity and the SAVE extension. Bills that will not advance include the death penalty, education savings accounts and efforts to expand bottle deposit laws. An expanded list of what did and did not survive the funnel can be seen here.

Meanwhile, progress was made on supplemental state aid bill for K-12 education and negotiations continue on a final compromise to “de-appropriate” current year funding due to unexpected budget shortfalls.


Massive Infrastructure Plan Released
President Trump released his $4 trillion budget plan for fiscal 2019, including a call for billions more in infrastructure spending and money for a border wall. As part of the unveiling of the infrastructure plan, President Trump hosted state and local officials for a discussion at the White House. Included in the meeting was Cedar Rapids Mayor Brad Hart and City Manager Jeff Pomeranz, as well as Iowa Speaker of the House Linda Upmeyer. Flood protection funding for Cedar Rapids was one of the items discussed.

Workforce: Immigration Reform
Part of the deal reached last week to keep the federal government open included a promise by Sen. Majority Leader Mitch McConnell (R-KY) to have the Senate begin debate on immigration reform, including dealing with the Deferred Action for Childhood Arrivals (DACA) recipients. Also known as “Dreamers” who were brought to the U.S. illegally as children through no fault of their own.

Senators failed to find consensus on legislation that will receive the majority of the Senate’s support, as well as the House and the President’s. Trump’s decision to end the DACA program gives Congress until March 5 to fix the problem.

Economic Alliance members consistently tell us growing our skilled workforce is their number one concern. Advocating for immigration reform, such as a permanent solution for Dreamer workers, has been one of our tactics to address this concern, and we remain hopeful the Administration and Congress will do the right thing.

Update: Trade Agreement Negotiations
U.S. Trade Representative Robert Lighthizer said at a meeting with the president and a bipartisan group of lawmakers that progress is being made on the renegotiations of the North American Free Trade Agreement (NAFTA).

The Economic Alliance is closely following and weighing in on the talks. The U.S. Chamber of Commerce recently released an analysis of which states would be most harmed from a NAFTA withdrawal. It shows Iowa would suffer sharply (#7 on this list!) if the U.S. withdraws from the agreement. Iowa's agri-business economy is vital to our state's fiscal health and will continue to advocate for trade deals that eliminating taxes and trade barriers on American products.

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