The details of Governor Culver’s and the Democrats’ compromise on the repeal of federal deductibility are out, and once again, there are winners and losers in every tax bracket. Various media outlets are claiming that the proposal is a $55 million tax cut, but an Iowa Department of Revenue analysis tells a troubling story.
The details of the bill show that 350,246 Iowans will see their taxes increase in 2009. By 2011, that number grows to 604,763 Iowans who will see their taxes increase. All of this comes after Governor Culver pledged not to raise taxes during a recess
Breaking down the numbers for 2009:
350,246 or 25.7% of all taxpayers will see a tax increase.
190,862 or 14.1% of taxpayers will see no change in their tax liability.
818,921 or 60.2% of taxpayers will receive a tax cut.
The bill increases taxes on some Iowans to pay for a tax cut for other Iowans.
The original reason that Democrats wanted to eliminate federal deductibility was because they said it made the tax code too confusing, and this would help simplify the Iowa tax code. Yet, this proposal is just as complicated as the last with winners and losers almost randomly picked across a broad spectrum of tax brackets.
235,552 or 67% of the people who will see their taxes increased earn less than $70,000 a year. Yet, the Democrats are out promoting their plan as a “middle class tax cut.” The people who are hit the hardest will be those who earn between $40,000 and $50,000.
The Democrats are also playing politics with their new proposal. While the traditional news media is out there saying that over 800,000 taxpayers will see a tax cut, that’s only true for the first couple of years -the ones leading up to the next election. In 2010, the number of people paying higher taxes goes up to 367,685, but the number skyrockets after the 2010 election. In 2011, 604,763 Iowa taxpayers will be asked to pay more taxes.
It’s also impossible for Iowans to know whether or not they will be affected by this legislation… so much for tax simplification. It’s important to remember that the federal tax cuts of 2001 & 2003 will expire soon. When those tax cuts sunset, Iowans will see their federal taxes increase by $154 million.
Nothing in this bill requires that the additional revenue generated by the expiration of the Bush tax cuts will to go towards tax relief or prevent the legislature from using this additional revenue for more spending. Simply put, it is another tax increase that will be a windfall for the state of Iowa.
Many of Iowa’s small business owners have their income taxed at the individual rate. When their taxes are increased, they are only left with two options: increase the cost of their products or services, or eliminate jobs to make ends meet. We have already seen unemployment numbers swell in Iowa in the past months; a series of tax increases will lead to more Iowans being out of work.
Governor Chet Culver has repeatedly told the people of Iowa this year that, “Now is not the time to be raising taxes.” It looks as if his pledge on taxes was about as good as his pledge on protecting traditional marriage. Still, Governor Culver is out there saying, “We’re giving back $54 million to the taxpayers, so this is going to be a major tax cut.” It’s not a tax cut or even revenue neutral to the 350,000 Iowans who are being asked to pay more.
This scheme even raises taxes on 11,000 people making less than $20,000 a year. Governor Culver must think they can afford a tax increase in these difficult times.
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