Iowa Republicans likely to oppose key element of governor’s tax plan

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Governor Kim Reynolds proposes eliminating federal deductibility as part of a broad tax reform plan, she revealed today during her first Condition of the State address to Iowa lawmakers. She’ll have to spend some political capital to get that idea through the legislature. In a plot twist, the fiercest opposition will come from members of her own party, including leaders of the House and Senate tax-writing committees. The full text of Reynolds’ speech is at the the end of this post. Here’s the most important announcement related to tax policy: Democratic lawmakers have long supported ending federal deductibility, which Iowa State University economist Dave Swenson has called “an archaic holdover.” Alabama and Louisiana are the only two other states that still have this policy on the books. Some Republicans, notably Reynolds’ gubernatorial primary rival Ron Corbett, have also called for ending federal deductibility. But the policy is anathema to powerful figures in GOP circles. When statehouse Democrats tried to incorporate this idea into a broad tax reform bill in 2009, Republicans objected that it was unfair to impose “a tax on a tax.” The conservative advocacy group Iowans for Tax Relief spent some $250,000 on advertising demanding that taxpayers be allowed to continue to write off federal tax payments on state returns. The same group “helped derail a similar proposal in the 1980s when it was pushed by former Republican Gov. Terry Branstad.” Ed Failor, Jr., the longtime leader of Iowans for Tax Relief, is now the top aide to Senate Majority Leader Bill Dix. I have not yet seen tax plans being floated with Iowa House Republicans, but House Ways and Means Committee Chair Guy Vander Linden told Bleeding Heartland on January 2 that he is not open to eliminating federal deductibility for personal income taxes. Vander Linden

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