PRAIRIE CITY — Rep. Greg Heartsill, R-Columbia, like many Republicans in the Iowa House, is watching the potential ramifications of federal tax reform bill in Washington, D.C. closely.
The language in the final bill waiting to be signed by President Donald Trump is expected to lower the nation’s top income tax brackets from 39.6 percent to 37 percent for high-income earners, and a reduction in the marginal tax rate could provide slightly more take-home pay for lower-income Americans.
Heartsill and other Republicans in the Iowa legislature hope this will increase revenues for Iowa’s coffers by giving the state more income to tax.
If this holds true, Heartsill anticipates Iowa seriously discussing its own version of tax reform in the 2018 legislative session, lowing Iowa’s top rates and providing what the third-term House member characterizes as “a more competitive tax rate” for corporations looking to locate or relocate to the state.
“I think there’s going to be a strong push for doing some type of tax reform at the state level to compliment what’s happening at the federal level,” Heartsill said. “I would say there’s going to be serious discussion on trying to move something forward this year — at least trying to simplify the tax code, make our top marginal rates lower and look at ways to eliminate tax credits or lessen our dependency on tax credits to incentivize businesses in the area to grow here by having a better, more competitive tax rate at the corporate level.”
Heartsill said although he’s not on the House Ways and Means Committee, he’s heard discussion about tax reform being a high priority for Republican leadership in both chambers of the Iowa General Assembly, as well as Gov. Kim Reynolds office. He says it’s a wait-and-see approach until the final federal bill is signed into law. But reforming and simplifying Iowa’s tax code, Heartsill said, is a measure he supports.
Heartsill represents Iowa House District 28 which includes rural portions of west and southwest Jasper County, Monroe, the majority of Marion County and the western two-thirds of Lucas County. He is vice chairperson of House Government Oversight Committee and sits on the House Local Government, Judiciary and Veterans Affair Committees.
Iowa’s Water Quality
In a recent phone interview with Newton Daily News, Heartsill acknowledged a sustainable water quality bill did not get the traction in the 2017 session that it needed to pass, but he sees promise in the coming session, which begins Jan. 8. Reynolds has been making the rounds in the Iowa media pushing the legislature to have a water quality bill on her desk early in the session.
Heartsill said the key is to have a sustainable funding source for Iowa farmers to implement the states nutrient reduction strategy — currently a voluntary program encouraging producers to use cover crops, buffer zones and terracing to lessen the amount of nitrogen and manure runoff from fields into Iowa streams, rivers and groundwater.
Heartsill said both the Senate and House versions of water quality initiatives try to fund the program with existing revenue and future revenue projections. Heartsill sees this as realistic even with a $131 million budget shortfall plaguing the state’s balance sheet.
“The goal is to make sure we’re using current revenue streams which ensures the funding stream is sustainable and adequate moving forward,” Heartsill said. “And projecting growth down the road and using that anticipated growth so we’re not having hardly if any impact on the general fund.”
Heartsill admits there are budget challenges and not all government programs are definitely immune to cuts. Iowa House Republicans have committed to replenishing the state’s cash reserve fund which Reynolds dipped into in order to make up for the $131 million revenue shortfall.
“There is no question we’re going to address that until we get our reserves back up to where they’re supposed to be,” Heartsill said.
It will be one of the first issues, along with public school funding, on the legislature’s plate in January. Heartsill said he doesn’t know of any specific program on the chopping block in 2018, but conversations among his colleagues indicate some lawmakers see tax backfill given to local municipalities to make up for revenue shortfall’s from former Gov. Terry Branstad’s 2013 property tax rollback as a big expense for Iowa’s general fund.
Reynolds told Radio Iowa in an interview published Thursday that rescinding the municipal backfill was “not a priority” for her and “that’s a promise we made to them.”
But there has been stated support for rolling back the program, even from some Democrats. In a bi-partisan panel at a luncheon from the Iowa Chamber Alliance in Des Moines Sen. Chaz Allen, D-Newton, said he anticipates the backfill to eventually end.
According to the Des Moines Register Allen said, “It is not like you are going to get it forever. It made no sense in the first place.”
For now, Heartsill says an attempt to reduce the backfill is just speculation on his part. But he said many of Iowa’s cities and small towns — but not all — are generating more revenue than they were before the 2013 property tax rollbacks, helping the case to gradually scale down the backfill program.
“The question has been circulating, did we ever intend for (backfill) to go on into perpetuity? I don’t think anyone ever expected that,” Heartsill said. “There are two sides. One says that was supposed to go on forever or long-term and there’s the other side that says this was just to make sure we’re not pulling the rug out from our local municipalities.”
Heartsill returns to the possibility that tax reform would spur economic growth and, eventually, offset revenue shortfalls which could lead to tax increases or budget cuts in the future if not reversed. He said a lower “flat tax” could help avoid that scenario.
Heartsill said federal deductibility of Iowa’s state income taxes is a net positive, but he said not every individual looks at those details or the “yes, buts” like tax incentives when trying to decide to locate or move to Iowa.
“When you look at a 12 percent corporate tax rate, that is a huge negative bumper sticker for our state,” Heartsill said. “Any corporation or company considering moving to a different state, when they look at Iowa they see the top rate of 12 percent. That scares them away.”
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