To kick off the 2010 legislative session, House Democrats sent a message to Iowa taxpayers: the effort to eliminate your ability to deduct your federal taxes paid from your state income tax liability is on the table. In other words, a massive income tax increase is looming.
On January 27, 2010, the House Ways and Means Committee met for the first time of the 2010 legislative session. The meeting was short and to the point. Several bills were assigned to subcommittee, including House File 807 the highly controversial bill to eliminate federal deductibility, and then the meeting adjourned.
As you know, federal deductibility gives taxpayers the ability to fully deduct 100% of all federal tax payments on their state income tax returns. This is extremely important for low and middle class income earners. For many of them, this is the only and largest deduction available to them. For example, low and middle income taxpayers who do not own a home or have children cannot utilize income tax deductions and credits available to others; such as mortgage interest, property taxes and child and dependent care tax credits. Moreover, it is an issue of fairness. It is not fair to taxpayers to be required to pay state taxes on income never realized. Eliminating federal deductibility is a tax on a tax plain and simple.
If enacted, House File 807 will create winners and losers in every tax bracket.
If enacted, House File 807 will create winners and losers in every tax bracket. Taxes will increase for some taxpayers regardless of how much they make. The cumulative tax increase on Iowa taxpayers over the next five years under the plan is over $400 million.
It is no surprise that Iowans are outraged over the proposal. Last year, hundreds of concerned citizens filled the House chamber to convey their displeasure with the tax increase. In addition, the National Taxpayers Union released a poll on January 12, 2010 that states 77% of Iowans support keeping federal deductibility and believe it is in their best financial interest.
House Republicans will standby Iowa taxpayers and continue to fight against this fundamentally flawed proposal that seeks to increase taxes on hardworking Iowa families. While it is never wise to allow the government to increase the amount of hard earned dollars it withholds from individuals, it is especially destructive to do so during tough economic times. Iowans know better than government on how to spend and invest their money and House Republicans are committed to allowing them to do so.