What's Changed? The Democrats New Plan For Federal Deducibility

From this week’s House Republican Newsletter:

In the past several weeks, this publication has reported on a proposal from House Democrats to eliminate Iowans ability to deduct their federal income taxes from their Iowa income tax liability (House File 807).

After hearing from a number of people outraged with the proposal, House Democrats have filed an amendment (H-1484) that seeks to change the bill. Today, this column will summarize the amendment’s impact on the bill.

What’s Changed?

  • Increases the income tax rates above what was originally proposed in HF 807 on individuals in each income bracket between $5,600 to $63,315.
  • Increases – and indexes for inflation – Iowa’s base standard deduction amounts from $1,230 to $2,710 for singles, married separate returns, and $3,030 to $5,420 for married joint returns.
  • Provides a $100 refundable tax credit for undergraduate Iowa residents attending two-year, four-year colleges or universities.

What Has Stayed the Same?

  • Taxes will increase. The total net tax increase over the next five years equals $405 million.

  • There are winners and loser in each bracket and the individuals that will pay more taxes or see no change in their tax liability are greater than the amount of individuals that will receive a tax cut beginning in 2011.
  • There are winners and losers in EVERY tax bracket. For example, in 2011, 16,611 filers making less than $20,000 will see their taxes increase, while 9,611 filers making more than $250,000 will see their taxes cut.
    Individual Filers/ Winners vs. Losers and No Change
    Tax Year Winners Losers/No Change % of Winners vs. Losers/No Changes

    2009 818,921 541,108 60%winners vs. 40%losers/no change
    2010 825,496 541,506 60%winners vs. 40%losers/no change
    2011 595,650 777,322 43%winners vs. 57%losers/no change
    2012 598,747 778,738 43%winners vs. 57%losers/no change
    2013 616,275 764,954 44%winners vs. 56%losers/no change
  • Under the Democrats revised proposal, over the next five years, approximately 55% of the filers that will see their taxes increase make less than $70,000 per year.