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In one of the first actions taken by the 2006 Iowa General
Assembly, the House Ways and Means Committee voted out a bill
eliminating Iowa income tax on all pension and Social Security income.
The measure, which is estimated to cost $250 million annually
when fully implemented, fails all three principles of Iowa Federation
of Labor, AFL-CIO tax policy—tax fairness, tax equity and tax
adequacy.
Cuts
are Unfair and Inequitable
Totally
eliminating Iowa income taxes on Social Security and pension income
primarily benefits the wealthy.
Under current law Iowa couples pay no taxes on Social Security
income unless their total income exceeds $32,000.
Current law also exempts a couple’s first $12,000 of pension
income from Iowa income tax.
An
example of the preference Iowa already gives to low– or
moderate-income Social Security recipients would be to look at two
families making $30,000.
A single-income family of four, making $30,000 and claiming a
standard deduction, owes Iowa taxes of $1,084.
By contrast, a retired couple, with $30,000 in Social Security
and pension income, owes no Iowa taxes, because their income does not
meet the $32,000 threshold.
Iowa also exempts the first $12,000 of pension income for a
married couple.
According
to a 2001 Iowa Department of Revenue (DOR) study, less than 1 in 3
Iowans who receive Social Security pay any Iowa income tax at all.
The DOR study also found that 81% of the benefits from
eliminating the tax on Social Security would go to households earning
over $50,000 in retirement.
The
bottom line—seven out of ten Iowa retirees would receive no benefit
as a result of this tax cut.
What
About Funding Iowa’s Priorities?
Top
priorities are likely to go unfunded if this proposal becomes law.
In his Condition of the State Message, Governor Vilsack called
for increased funding to improve Iowa teacher salaries, which have
fallen to 41st in the nation.
He also laid out plans for expanded early childhood education,
funding assistance to help small businesses provide employee health
insurance, a plan to improve water quality in Iowa, and the creation
of a state payment for injured Iowa servicemen and women.
All of these initiatives require funding.
This tax cut will result in inadequate revenue to the state and
will seriously undermine the state’s ability to maintain the status
quo, let alone fund the Governor’s laudable goals.
The
Plan is Based on False Assumptions
Advocates
argue that the measure is needed to keep wealthy citizens from leaving
Iowa and taking their tax dollars with them.
There is no evidence to support this claim.
In fact, a 2005 Legislative Services Agency Fiscal Services
Report studying out-migration to Texas and Arizona concluded that
“differences in state income tax policy do not explain Iowa’s
out-migration to those states, as both higher and lower income tax
states around Iowa have similar or even greater relative (population)
losses than Iowa.”
Comparisons of census data also have failed to show that tax
policy is a factor in migration between Iowa and Illinois.
It’s a good bet that climate and geography trump tax policy
when retirees choose a place to live.
Contact
Your Representatives and Senators
Help
stop this legislation.
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Representatives
can be reached by calling: 515-281-3221.
Senators can be reached by calling: 515-281-3371.
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To
contact a legislator by e-mail send your message to: firstname.lastname@legis.state.ia.us.
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To
contact your legislators by mail write:
The
Honorable _____________________
(State
Senator / State Representative)
Statehouse
Des
Moines, IA 50309
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