A Tax Cut for Middle Income Iowans
Since the first week of the 2013 session, Republicans have been working on ways to leave more money in Iowans’ pocketbooks. House Republicans recognize now is the time for serious, meaningful tax relief. We are not dug in on any one idea on tax relief; we want to be able to talk about several options. While we’re still focused on property tax relief and other reductions in taxes, House File 3, reducing Iowans’ income taxes, was considered on the House floor this week.
House File 478
- Gives Iowans a choice when paying their income taxes, either the current system or a 4.5 percent flat tax with zero deductions or credits. No one will be pay higher income taxes under this plan.
- Raises the filing threshold so that the first $6,235 (or $12,450 for married couple) would not be taxed.
- Makes Iowa’s tax system simpler, flatter, and fairer.
The nonpartisan Legislative Services Agency (LSA) predicts that with the House File 478 proposal, close to 39 percent of all income tax filers in Iowa would chose the flat tax option and it would reduce the overall tax burden by close to $400 million. They also predict the beneficiaries would be concentrated in both the middle-income and higher-income households.
With the flat tax option, the taxpayers receiving the greatest benefit fall in the $30,000 to $40,000 bracket. For all filers, those who elected this option would save $819 on average.
An amendment sets in place a permanent mechanism to return any overpayment of taxes back to Iowans. Currently, Iowans are paying too much in their taxes. Once the legislature and the governor set budget priorities and reserve funds are full, the taxpayer trust fund collects anything leftover. This bill sends any leftover money back to the taxpayer through a credit on their tax forms. This isn’t a rebate but instead it reduces the tax liability of any Iowan paying income taxes when the state does not spend everything it collects.
Both the amendment and the bill are consistent, fair and simple. Every Iowan is treated the same. Every Iowan is given the same choice between the current system or the new flat tax system. Every Iowan is given the same credit if the state does not spend everything it collects.
There is a fork in the road – should the legislature take the path of spending limited one-time revenues on recurring expenses growing government or should the legislature send this money back to Iowa taxpayers? House Republicans believe any overpayment of tax dollars belongs in the pockets of Iowans, not as a pot of money for the politicians to brag about in the short term knowing full well that the funding will dry up in the long term.
Analysis of Sequestration Impact on Iowa
Last Thursday, the Department of Management (DOM) gave the public the first projection on how the federal budget sequestration could impact the state of Iowa. DOM Director David Roederer announced that his department’s initial analysis showed the state receiving $46.3 million less than what had been previously projected. For FY 2013, the estimated amount of federal funds coming to Iowa is around $6.1 billion. In percentage terms, sequestration reduces federal funding to Iowa by 0.76%.
According to the analysis, the Department of Education is projected to see a sequestration reduction of $14.1 million amongst the programs subject to the adjustment. The largest changes were to funding received through the Individuals with Disabilities Education Act (IDEA). Title I funding for FY 13 was also reduced, but the total funding from that source was still an increase over FY 2012.
Resources for Vocational Rehabilitation Services would also be impacted by sequestration, as its federal funding is reduced by $4.3 million. The Low Income Home Energy Assistance Program (LIHEAP) in the Department of Human Rights is reduced by a similar amount. Many programs within the Department of Public Health, which is primarily funded with federal dollars, see adjustments in their allocations.
While some in Washington have attempted to portray sequestration as an immediate disaster for states, many of the programs that have a direct impact of people’s everyday lives were exempted by Congress.
One area where the impact is yet to be determined is the Department of Public Defense. Adjustments to these lines of funding have yet to be determined by the Pentagon.
Director Roederer noted that the impact of sequestration could go for 10 years if Congress does not act to change any of the adjustments. At this point, the Governor’s office does not anticipate any actions to replace the changes in federal funding.
Governor Proposes Alternative to Medicaid Expansion
Governor Terry Branstad recently unveiled the Healthy Iowa Plan, a program that improves access and rewards health by focusing on outcomes. Branstad is concerned about expanding the current Medicaid program and entering into an additional state-federal partnership in a country that has a record deficit and dysfunction at the federal level.
Medicaid is program that both parties have acknowledged needs repair and is not sustainable in the long-term. Yet many continue to advocate jumping into an expansion with both feet but without any reforms or assurances from the federal government regarding future funding. One of the key parts of the Governor’s plan is personal responsibility. It is also a part which has been attacked repeatedly by Democrats.
The Healthy Iowa Plan would ensure coverage for all Iowans living under the poverty line.
- The Healthy Iowa Plan replaces the expiring IowaCare program that currently provides coverage on a limited to basis to about 67,000 low-income Iowans.
- Rougly 89,000 uninsured Iowans earning below 100% Federal Poverty Line gain access to care.
- People 101% FPL and above receive tax credits to subsidize the purchase of private health insurance through the exchange. The tax credits alone will reduce Iowa’s uninsured population by more than half.
- The Healthy Iowa Plan utilizes Accountable Care Organizations (ACOs) to provide local services and ensure robust access to care. The plan provides a commercial-like benefits package that includes in and outpatient services, physician services, prescription drugs, home health, durable medical equipment, therapies and some transportation.
Personal Responsibility Measures:
- The program requires participants to contribute to the program on a sliding scale based on their income. Participant contributions could be as little as $5 per month.
- The program includes incentives for Iowan’s to take action to improve their health.
- The program draws on federal dollars for its financing. In the first year, the program would cost an estimated $162 million.
- The general fund cost would be $23 million in the first year. This is a slight increase over what the state currently spends on IowaCare.
Outcomes Based Reimbursement:
- The Healthy Iowa Plan rewards health care providers by using a value based reimbursement model. This model incentivizes ACOs to provide higher quality health care and better outcomes for patients.
In order for the plan to proceed, the Governor has to get a Medicaid waiver from the Centers for Medicare and Medicaid Services in Washington, D.C. and the legislature will also be tasked with passing a Healthy Iowa Plan policy bill through the house and senate before the end of the 2013 session.
Recap of Week Nine
This week I met with the Manchester Good to Great Committee along with Sen. Zumbach. The group is focused on improving and upgrading Manchester’s recreational property. We discussed school aid and funding for the trails along the Maquoketa River.
I also met with Jones County Recorder Marie Krutzfield and County Treasurer Amy Picray. They were at the Capitol for County Day on the Hill. They were joined by county officials from across the state that came to Des Moines to discuss local issues.
On Thursday, students from Maquoketa Valley High School came to Des Moines for a tour of the Statehouse. I met and showed them around the House Chamber.
This Saturday I will be at the Maquoketa Valley REC Forum in Anamosa. It runs 9 to 10:30 am in the basement of the Maquoketa Valley REC office and is open to the public.
If you have any questions, comments or concerns about these topics or any others please feel free to contact me by e-mail at firstname.lastname@example.org or by phone at (515) 281-7330.
Rep. Lee Hein