Iowa's fixer-upper tax code remains behind closed doors

Gov. Kim Reynolds’ centerpiece tax plan is like one of those TV home-remodeling shows: The property owners don’t get to watch the construction but they have to live with the results.

It’s been three weeks since Iowa House Republicans gave her $1.7 billion income-tax cut initial approval in subcommittee.  In the meantime, GOP lawmakers have been hammering behind the scenes to rewrite the bill.

“It will be an amended version, probably significantly amended version of the governor’s bill,” Rep. Guy Vander Linden, R-Oskaloosa, chair of the tax-writing Ways and Means Committee, said Tuesday.

House Speaker Linda Upmeyer has been promising an open and transparent discussion in the House. Senate Republicans were criticized for ramming their bill through the committee process within a few days with no fiscal analysis and approving it on the floor with no additional opportunities for public comment.

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Upmeyer said Friday there will be time for Iowans to discuss the bill.  “I don't know that there is a magic number for the amount of time. … But there's going to be an opportunity for the public to take a look at it and for us to get feedback from other folks,” she said on Iowa Public Television's “Iowa Press.”

What exactly that means isn’t clear, however. Rep. Peter Cownie, R-West Des Moines, the subcommittee chairman for House Study Bill 671, said he would be amenable to a public hearing after it comes through committee.

But Vander Linden said Tuesday he doesn’t think that’s necessary.  He said there may be a second subcommittee meeting, which does allow time for public comment. “We’ve certainly not seen any reluctance on the part of Iowans to comment,” he said.

The House is moving at a slower pace than Senate Republicans did, but so far not with greater transparency. Iowans may feel free to comment, but at this stage, they have no idea what’s in the bill.

Vander Linden and Cownie weren’t sure either when I talked to them on Tuesday. They were hoping to have a new bill draft this week, but it hadn’t materialized yet by Wednesday afternoon.

They did drop some crumbs, however.  Here’s how they answered some key questions about the House tax bill:

Will corporations get a tax cut?

It appears some House GOP leaders are leaning toward including a corporate tax cut in their plan.  “Personally, I think if we’re going to go through the pain and expense of tax reform, let’s get it done,” Vander Linden said.

Cownie also indicated Tuesday that lawmakers may include a corporate tax cut. “The live round out there is the corporate rate, with it being as penalizing as it is, if we can do anything on that,” he said.

Some House Republicans want to move ahead with corporate cuts this year and some don’t, he said. “The question is, if the corporate rate is going to get lower, tax credits to offset something like that would probably be the answer,” Cownie said.

 Reynolds didn’t include a corporate tax cut in her proposal. She argued that the state should wait a year to get a handle on how businesses react to the federal tax cut. The Senate Republican bill, which passed Feb. 28, would cut corporate taxes by $267 million by 2023.

Will credit unions see a tax increase?

Cownie was less forthcoming about whether the House will include a controversial tax increase for credit unions.  “I think it causes a lot of stress for individual lawmakers, no doubt about it,” he said. “It remains to be seen what the committee will do with that.”

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The Senate, under heavy lobbying from Iowa bankers, cut taxes for banks by nearly $18 million by 2023. The Senate bill raised taxes for nonprofit credit unions by just over $3 million.

Will Iowans pay more for Internet services?

House leaders seem inclined, however, to preserve other parts of the governor’s plan that the Senate jettisoned.  Senate Republicans decided at the last minute to yank out a proposed expansion of sales taxes to cover digital products and services.

Both Vander Linden and Cownie, however, cast proposals like taxing movie-streaming services and online sales as matters of fairness.  “If the sales tax is going to mirror the modern economy, we need to make some changes,” Vander Linden said.

The Senate’s original bill, which included ride services like Uber, would have increased state revenue from sales and use taxes by about $73 million by 2023.  

Will tax cuts be delayed if revenues lag?

Both Reynolds and Upmeyer have insisted that their tax proposals will be sustainable. To me, that word means “affordable.” But that also remains to be seen. Including corporate tax cuts could add significantly to the state’s cost, depending on how many tax credits and exemptions lawmakers decide to eliminate.

The fact that the House was voting Tuesday to cut another $35.5 million from the current year’s budget was not lost on Cownie.  He and Vander Linden both indicate they see prudence in the governor’s proposal to build in safeguards in case revenue growth remains below 3.5 percent.

The Senate didn’t include revenue levels that must be reached before the tax cuts take effect. 

So far, Republicans in the House and Senate have not announced their spending targets for the 2019 budget year.

Iowa’s tax code is a fixer-upper, but Iowans shouldn’t be left on the lawn waiting for the big reveal. Reynolds and legislative Republicans can put up as much shiplap as they like to create an election-year fantasy for voters.  But if the walls are rotten, Iowans will have to live with the consequences.