Iowa voters might have the opportunity to determine whether they prefer a flat income tax rate to be enshrined in the state’s constitution.
The Senate Study Bill 3189 was approved by a subcommittee of the Ways and Means committee on Wednesday. If it is given the final approval, the resolution will be presented to next year’s legislature for adoption.
The Legislature passed a tax plan in 2022, which was then signed into law by Gov. Kim Reynolds. This plan is designed to gradually lower the state’s tax rate and ultimately implement a 3.6% flat tax in 2026.
According to Mike Owen of Common Good Iowa, the flat tax is deemed unfair to lower-income families.
According to Owen, a 3% deduction from the income of a family earning $40,000 per year holds greater significance for that particular family compared to a 3% deduction from a family with a household budget of $140,000, $240,000, or even a million dollars.
According to Owen, implementing a flat tax rate would not only decrease the state’s available resources for providing services but also face opposition from various organizations including the Sierra Club, the Iowa Federation of Labor AFL-CIO, and the Iowa Catholic Conference.
According to Andy Conlin from Iowans for Tax Relief, the flat tax is a straightforward and beneficial approach to promoting economic growth.
According to Conlin, high-income earners will end up paying more under a flat tax simply because of their high earning status.
Supporters of a flat tax also highlight the fact that numerous small businesses file taxes as “pass through” entities, which means they pay state individual income taxes. By implementing a flat tax system for these entities, it can potentially stimulate economic growth.
The flat tax has garnered support from the Iowa Association of Business and Industry, the Iowa Bankers Association, and Americans For Prosperity.
Sen. Cindy Winckler, a Democrat from Davenport, expressed her opposition to the bill, citing the ongoing transition towards implementing the flat tax that was approved in 2022. She stated that she would not lend her support to the current proposal.
According to Winckler, the impact of the bill is still unknown. When examining the fiscal note of the bill, it was observed that revenue would decrease until 2026 due to the introduction of the flat tax.
According to her, the bill would also eliminate the Legislature’s ability to identify the needs of the population.
According to Winckler, it is crucial to exercise caution when making amendments to the constitution. He believes that restricting the Legislature’s authority on taxation is not a favorable approach to decision-making.
According to the Tax Foundation, there are twelve states that have a flat income tax rate. Winckler adds that four of these states, namely Colorado, Illinois, Michigan, and Pennsylvania, have even included it in their state constitution.
The Senate Ways and Means Committee is now responsible for reviewing the bill.
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