The Iowa House Ways & Means Committee approved giving Iowans the option of paying a flat 4.5 percent rate on their income.
The change could benefit tax filers “up and down the tax brackets,” saving Iowa taxpayers nearly $400 million a year, Rep. Chip Baltimore, R-Boone, said Feb. 28 before a party line vote to send House File 3 to the full House.
Rep. Dan Kelley, D-Newton, said HF 3 would give high-income earners with access to high-priced tax help an advantage over other Iowans.
“My concern is for lower income earners and the middle-class,” Kelley said.
Even if there is an advantage for high-income earners who face a top rate of 8.9 percent on incomes as low as $67,000, Baltimore said the bill creates no disadvantage for others.
According to the Department of Revenue, 63,000 filers, or 43 percent of Iowans reporting income of $30,000 to $40,000, could benefit by using the flat tax rather than the current system of deducting expenses and federal taxes. Sixty-four percent of those earning $175,000 to $200,000 could benefit.
Fewer than 4 percent of Iowans earning less than $20,000 would benefit from the flat tax, but many of them have no state income tax liability, Baltimore said. Just 19 percent of Iowans earning more than $1 million could benefit.
He compared the decision whether to pay the flat tax or file a traditional return as being no different than couples choosing between “married, filing jointly” and “married, filing separately.”
Senate Ways & Means Committee Chairman Joe Bolkcom, D-Iowa City, indicated he is not inclined to take up HF 3.