The Elimination of Federal Deductibility

From Republican Leader Kraig Paulsen:
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Late last week, Democrat leadership rolled out their plan to eliminate Iowans’ largest tax deduction, federal deductibility. This bill is HSB 284.

In Iowa we have the opportunity to deduct our federal income tax burden from our ordinary income prior to calculating our taxable income. This is regardless of whether or not you itemize.

Democrats claim that eliminating federal deductibility will allow Iowans to pay their bills, pay for college tuition and cover day-to-day expenses. But according to their own math, it will only give the average Iowan an extra 17 cents a day.

17 cents a day will do nothing for middle class Iowans or small businesses who are feeling the pain of this recession. Republicans stand ready to cut taxes for hard-working Iowans by far more than 17 cents a day. If Democrats want tax cuts, we’ll help them pass REAL tax cuts. We are not interested, however, in eliminating the largest tax deduction that Iowans’ receive.

What they are masquerading as a ‘middle-class tax cut,’ in reality is a major tax increase. It seems clear to me that this plan is designed to try to satisfy state government’s insatiable appetite for spending.

The tax increase impacts Iowans like this; the plan would go into effect the next tax year and basically be revenue neutral as to total state revenue. The real impact occurs when the federal income tax rates go up on January 1, 2011. When that occurs Iowans will have to pay state taxes on this increased federal tax burden. The inability to use this deduction will result in Iowans paying approximately $125 million more in income taxes.

The bill is being debated at the committee level today and there is a public hearing at the State Capitol on Tuesday, March 31 from 7:30 pm to 9:30 pm on House Study Bill 284.

If you would be interested in speaking at the public hearing, please contact my office at (515) 281-3521. Even if you do not want to speak, you can still support our efforts to protect federal deductibility by being present and showing your support during the discussion.

Right now it is unclear whether the votes exist to pass this bill. If you support keeping this important deduction for hard working Iowans, now is the time to contact legislators. The following link has phone numbers and email addresses of your state representatives: http://www.legis.state.ia.us/aspx/Legislators/LegislatorInfo.aspx

I’ll keep you updated on any movement on this bill, or any other proposals in the House that are not in the interest of the taxpayer. As always, if you have any questions or concerns, please feel free to contact me at kraig.paulsen@legis.state.ia.us.

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