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Senate panel launches second flat tax constitutional amendment • Iowa Capital Dispatch [1]
['Robin Opsahl', 'More From Author', '- March']
Date: 2024-03-20
A flat tax rate would be enshrined in the state constitution under a measure advanced Wednesday by the Senate Ways and Means Committee.
Senate Study Bill 3189 would start the process of amending the state constitution to include a requirement for a flat individual income tax rate.
The measure is separate from another tax proposal introduced as a potential constitutional amendment through Senate Joint Resolution 2003. That resolution included adding the flat income tax requirement into the Iowa Constitution, as well as requiring individual or corporate tax rate increases and new taxes to receive two-thirds majority support from both chambers to pass.
Sen. Dan Dawson, R-Council Bluffs, told reporters Wednesday that the provision to add a two-third majority vote for raising taxes requirement is still alive, but will be moving as a separate resolution so that the two potential amendments would be listed as individual measures for Iowans to vote on in an election. Constitutional amendments must be approved by lawmakers in two consecutive general assemblies before heading to the ballot for voters in a general election.
Critics pushed back against the measure requiring a flat income tax at a subcommittee meeting earlier in March, saying that flat tax systems put a higher burden on low- and middle-income people than graduated tax rates, that tax at a higher rate for higher earners.
Rep. Cindy Winckler, D-Davenport, said she opposed putting any tax measure into the state constitution, and enshrining a flat tax could cause future problems for Iowa. The only other states to have a flat tax rate required by their constitution are Colorado, Illinois, Michigan and Pennsylvania — states with industries and revenue streams that look different from one another, and from Iowa, she said — meaning “we can’t identify that one size certainly fits all,” she said.
“Currently, we have income, sales and use tax and property tax as the main source of revenue for not only our state, but our local communities,” Winckler said. “And I think that taking only one component of a taxing system and placing it in the constitution, holding it higher than other areas, places an undue burden on the other areas of taxation.”
Dawson said during the subcommittee earlier in March that the constitutional amendment proposal was necessary to provide stability to Iowans and businesses.
“Any business here in the state has a five- or 10-year business plan, families are always trying to save for retirement,” Dawson said. “To me, this is a good tool that actually secures the gains that we have made to make the state more competitive.”
A constitutional amendment on income taxes was first brought up by lawmakers as part of a plan headed by Dawson and Rep. Bobby Kaufmann, R-Wilton, in February. The lawmakers introduced Senate Study Bill 3141 as an alternative to Iowa Gov. Kim Reynolds’ proposal, Senate File 2398, on further reducing individual income taxes after the 2022 tax cut.
Reynolds’ plan calls for a retroactive drop from from the current maximum 5.7% individual income tax rate to a flat 3.65% rate in 2024, and another cut in 2025 to 3.5%. Dawson and Kaufmann’s proposal would lower the tax rate to 3.775% in 2026 and 3.65% in 2027, followed by further tax cuts financed using a “Iowa Taxpayer Relief Trust,” created using a $2.6 billion transfer from the Taxpayer Relief Fund. Each year, 5% of money from the trust would be transferred to an “Income Tax Elimination Fund” for use to lower the individual income tax rate until it reaches 0%.
The governor’s bill has advanced through the Senate committee process, while subcommittee meetings have not yet been held on the lawmakers’ proposal.
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