I am a Northern Iowa Accounting graduate who passed the CPA Exam and am a member of the American Institute of CPA's. I'm also one of your constituents and voted for you. Because of this, I feel led to reply to a recent update you posted to your website schneiderforiowasenate.com
Below is the text of the relevant portion of your post:
Republicans Introduce Income Tax Relief
Iowa taxpayers are plagued with headaches every year as they prepare their state income tax returns, thanks to our complex tax system. Iowa has nine marginal tax brackets, ranging from 0.36% (the lowest Iowa tax bracket) to 8.98% (the highest Iowa tax bracket).
This last week, I co-sponsored a bill that creates a new, simplified option taxpayers can use to calculate their income tax liability. The new option flattens the Iowa income tax brackets, eliminates federal deductibility, and replaces itemized deductions with a higher standard deduction.
Compared to current law, the proposed plan provides an overall 5% reduction in income tax liability in the first year of enactment, an overall 10% reduction in liability in the second year, and an overall 15% reduction in liability in the third year and beyond. Taxpayers would be able to compute their taxes under the current method and the new simplified method, and then pay the lower amount. This ensures that no taxpayer will see their income tax burden increase. On average, taxpayers will receive a tax reduction of $360 in tax year 2014 and $516 in tax year 2015. In practical terms, that can be enough for a car payment, school clothes, or utility payments. This would help ease the burden of a tight family budget.
Comprehensive tax reform that is fair and responsible will help us continue to create jobs and grow the economy. This income tax relief plan is a step in the right direction.
My Response
Marginal tax brackets are hardly complex. Every tax software calculates this automatically and for paper filers the Iowa instructions, for this particular calculation, are helpful and informative. It truly is a relatively simple calculation. If you want to adjust the rates, fine, but the idea that marginal brackets are unduly confusing and burdening is misleading.
Eliminating the deductibility of federal taxes is a guaranteed tax increase for all Iowa taxpayers. It, by definition, increases the amount of income exposed to tax rates in the state of Iowa for everyone. Being able to deduct my federal withholding this year saved me $540 in Iowa tax for the 2012 year.
Taking away the itemized deduction and increasing the standard deduction is a good way to increase the number of Iowans who pay no Iowa income tax and increases the tax burdens on the most successful Iowans. I think there's merit to adjusting what's deductible as an itemized deduction, but why is this being branded as a tax benefit to Iowans?
Taking a final tally, I see two tax increases that will be used to "pay for" lower tax rates. This plan is not, in and of itself, bad. However, it carries the appearance of a shell game and seems disingenuous. This current bill does not simplify anything about the way Iowans taxes are calculated, it's just a different way. In fact, the tax law would be more complicated, because you've said they can choose which calculation to use. So now, Iowans will have to run their return under both the new and old law, optimizing between the two.
There's also no guarantee that any Iowa will have a lower tax bill under the new calc. And because the bill leaves the option to be taxed under the old law, indicates that the new calc will absolutely raise the tax burden for at least some, if not many.
If you have to raise taxes in order to lower them, what's the purpose of this bill other than to gain some sort of partisan bragging right? Whether your goal is to increase tax revenues or reduce the tax burden of Iowans, go ahead and do it. Just be honest about your intentions and do it in a way that's straightforward and equitable. If you can't bring your ideas to the senate floor, and ultimately to Iowans, and sell the idea in an honest and upfront way, your ideas are not strong enough. If your idea is good, it wouldn't need to be buried in a smoke and mirrors plan like the one you have presented.
Sincerely, a tired of the double-speak run-around constituent,
Kristopher Hauswirth
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