Focus on Facts: Reform Lowers Rates

There’s a lot of confusion being promoted by some about the tax-reform plan before the Iowa Legislature.

There are three main points to it:

  • • It lowers Iowa’s tax rates, taking the top rate down by 2 percentage points.
  • • To enable the lower rates, it does away with federal deductibility.
  • • There are additional boosts in tax credits targeted to low- and moderate-income working families.

Iowa Fiscal Partnership analysts have — like others — been going through the figures provided by the nonpartisan Legislative Services Agency (LSA) about the effects of the total package. Those effects have been portrayed many ways. IFP considers the following to be the most important points to be understood from that LSA analysis:

  • • For both 2009 and 2010, 73 percent of households with incomes below $50,000 a year would see their taxes either stay the same or decrease under the reform proposal.
  • • During 2009, households earning below $50,000 would, on average, see a tax change of no more than $70 in either direction, as a cut or an increase.
  • • Overall, Iowans earning below $125,000 would, on average, see a tax cut or no change.

That last number is an important one. We’ve been hearing a lot in recent days about effects on small business. Many of the claims don’t hold water.

As our researchers have found, more than 70 percent of small business owners in the U.S. earn less than $125,000. Because many small-business owners report and pay their state income tax on individual returns, this plan obviously helps them, too.

This plan makes a small but positive change in the tax code.

Posted by David Osterberg, Executive Director

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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