Hamerlinck’s Observations Week 11

Removing federal deductibility in Iowa would result in taxing Iowan’s for paying taxes. Iowa is one of a handful of states that allows a 100% deduction for federal income tax payments on the state individual tax return. It protects Iowans from paying a state income tax on money used to pay their federal income tax. It is the largest way some Iowans may lessen their tax burden. Democratic Senate leadership has announced a push to remove federal deductibility as a means of increasing revenue to cover budget shortfalls. If this method is used, Iowans will begin paying a tax on a tax.

Remember to always be careful when listening to politicians. Wording offered in the justification of policy changes can have drastically different implied meanings. For example, In Governor Culver’s pledge during his Condition of the State Address he promised not to raise taxes. I have heard a number of legislators make comments that removing federal deductibility would not be a tax increase, rather it would be a reduction in the deduction offered to tax payers.

Proponents of the elimination of federal deductibility claim the deduction allows wealthy Iowans to avoid paying their fair share of Iowa personal income taxes. The simply does not support this political propaganda. In fact, the top 10% of Iowa taxpayers pay about 40% of all Iowa personal income taxes. The next 20% pay about 30% of the burden and the bottom 50% of all Iowa income taxpayers pay less than 10% of the total Iowa personal income taxes. Removing federal deductibility would be a tax increase of $594 million.

Seeking out alternative revenue streams and diversifying revenue patterns are alternative ways of justifying tax increases. Ultimately, the debate is simple, so much money comes into the state and only so much can go back out for desired programming. Yesterday, I sat on the subcommittee for Senate Study Bill 1308 (SSB 1308) which will give individual municipalities and counties the authority to now tax individual income, entertainment and tobacco. Presenters discussed the overreliance local government has on property taxes and the need to diversify revenue streams in order to provide property tax relief. The bill was not presented as a tax increase due to the necessity of local elected officials in each city approving the implementation of the tax and the claim that this bill only gives local officials the authority if they choose to utilize it. Note, every time the state of Iowa has approved a new form of taxation in the name of property tax relief, real property tax relief has never occurred.

As the state continues to draw more resources from cities and counties while increasing the financial burden of unfunded mandates, local communities become strapped for funds to provided basic services. Sadly, ideas such as SSB 1308 are popping up. My ultimate concern is the steady and slow movement towards the fee as a solution. Local communities are utilizing storm water fees, garbage fees, recycling fees, waste water, and even development fees to compliment revenues derived from property taxes. By the end of our subcommittee meeting on Thursday, SSB 1308 moved in that direction as well.

Taxes can be filed on Iowa income tax returns, fees cannot. If we move down this path you would be paying for services in your property taxes and through the fee payment without having the right to claim the payment on your tax return. Before we ask more of you through your federal tax deductions and request you to pay more in fees we must first ask what is happening with the state budget to put local communities in this difficult spot.

If the state budget, in the past ten years, grew by double the rate of inflation we would still have a surplus this year of $20 million. Instead, the Revenue Estimating Conference last Friday reported we have a roughly $820 million gap in the FY 2010 budget. The ultimate alternative being offered to the taxpayer is bonding. Governor Culver came to Scott County last week and proposed the $750 million bonding package as our ultimate savior. This would result in $1.3 billion in payments and fees on the loans over a 20 y year span and that is only if we bond for 5%. Total appropriations for FY 2009 will be just over $13 billion with $6.1 billion of that coming from the general fund.

Rather than asking for more money from the taxpayers legislators should first offer receipts to the taxpayers to show how we have been spending their money. Legislators must first be accountable with the tax dollars you pay before we can ask for more. The transparency bill I cosponsored, Senate File 102, which would give you a searchable online database to see how your tax dollars are being spent passed through the House on Wednesday. We received word on Thursday that Democratic leadership in the Senate will not take up the measure for a vote.

No politician should fear accountability. It has been a pleasure serving you in Des Moines. I welcome you questions and comments. You may contact me on any issue at the Capitol this session. (Shawn.hamerlinck@legis.state.ia.us, Phone: 515-281-3371)