DES MOINES — Gov. Kim Reynolds unveiled a significant tax reform package Tuesday that seeks to cut Iowans’ personal income taxes by $1.7 billion between now and 2023, revamp rates by phasing out federal deductibility and equalize sales tax collections by treating Main Street and online merchants alike.

Calling her plan the “most significant tax reform package in decades,” Reynolds said her proposal to the Iowa Legislature would provide immediate relief to middle-class families, small-business owners, farmers and teachers starting in tax year 2019.

“My plan combines meaningful tax relief while protecting our budget priorities,” Reynolds said in a statement.

Legislative Republicans hailed it as a good starting point but one they may want to accelerate and compress into fewer brackets. Democrats questioned its affordability and its failure to address the issue of corporate tax credits.

“It’s a fantastic step,” said Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee. “It’s a great step for the state of Iowa and now we can build on it from there.”

The governor’s plan seeks to cut income tax rates by 23 percent, resulting in $1.7 billion accumulated relief by 2023.

Iowa’s current nine personal income tax brackets would be reduced to eight, with the top rate of 8.98 percent reduced to 6.9 percent by 2023. At the same time, the income level subject to that top rate would greatly increase. Now, incomes of $73,260 or more is taxed at the top rate. Under her proposal, only incomes of $160,965 or more by 2023 would pay the top rate.

ARTICLE CONTINUES BELOW ADVERTISEMENT

Feenstra said he believes Senate Republicans would like to compress Iowa’s system into four brackets and deliver the relief in a shorter time span, possibly as quickly as two years. But he said Reynolds’ proposed $1.7 billion total “was in the arena.”

Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, said he had not seen the governor’s bill but read her news release.

“It’s simplifying the system. That’s the direction that I’d like to go,” he said, noting there likely will be approaches from the House and Senate to be negotiated. “It’s going to take until the end of the session, I imagine,” he said.

The governor also proposed eliminating the alternative minimum tax and phasing out federal deductibility — a feature that now allows Iowans to deduct their federal tax liability from their taxable state income.

Under her plan, federal deductibility would be reduced to 25 percent in the 2019 tax year, 15 percent in 2020 and eliminated in 2020, aides said.

Reynolds’ office said middle-class Iowans would experience lower taxes under the plan, giving as examples:

l A single mom with one child making $30,000 would see a 28 percent cut next year, growing to 54 percent by 2023;

l A family of four making $55,000 would see a 10 percent tax cut next year, growing to 23 percent by 2023;

l And a family of four making $70,000 would see an 8.7 percent tax cut next year, growing to 20 percent by 2023.

In 2019, the standard deduction would increase from $2,070 to $4,000 for single filers and from $5,090 to $8,000 for married filers. There would be an additional standard deduction of $1,500 for the elderly and blind in 2019, rising to $2,070 in 2021.

Reynolds’ aides said the plan is designed to pass through the benefits of the federal tax cut to Iowans, roll the phasing out federal deductibility into the lower rates, recoup additional state sales tax and spur growth that would mean more taxable income.

Sen. Pam Jochum, a Dubuque Democrat who is the ranking member on the Senate Ways and Means Committee, called the governor’s failure to address corporate tax credits “a big, big mistake” that is unfair to working families and one of several “red flags.”

“Any tax cut plan for Iowa must be viewed in light of disastrous tax-cut plans approved in Kansas and Oklahoma, which have resulted in massive cuts to education, public safety, health care and other vital services,” Jochum said.

Rep. Dave Jacoby, D-Coralville, ranking member of the House Ways and Means Committee, said three criteria should be met before any new tax plan is approved: the state budget is balanced; the plan is fair and simple; and it provides relief for middle-class Iowans.

“What was released was a great political cowboy card and now we want to go to the next step and look at true tax policy,” Jacoby said in an interview. He said that, “at first blush,” it appeared the cost could be well above $1.7 billion.

“We’re in a current fiscal year crisis. Can we talk tax credits now or do we balance that budget first? I think we do that first. There’s some pieces in there that Democrats are willing to look at, but the devil is in the details,” he said.

ARTICLE CONTINUES BELOW ADVERTISEMENT

According to the governor’s office, the plan includes revenue “triggers” that would be safeguards in the event of an economic downturn. But if there is significant growth, triggers would accelerate the cuts.

Under Reynolds’ approach, Iowans would be able to invest in tax-free plans for K-12 tuition, allowing for more choice. Also, Iowa would fully couple with the federal educator expense deduction, giving teachers’ greater tax savings when they buy school supplies for their classrooms.

Iowa business owners would be able to deduct 25 percent of the new federal Qualified Business Income Deduction from their Iowa taxable income, and the business expensing limit would increase immediately from $25,000 to $100,000.

Reynolds noted that while many of Iowa’s bricks-and-mortar businesses must collect sales tax, many online, out-of-state companies do not.

She proposed those companies collect them, too, on transactions from Iowa. While that could cost online shoppers more, her office said “all increases in sales tax revenue for these online sales will be passed on to Iowans through greater income tax cuts, ensuring that the size of the state’s government is left in check.”

l Comments: (515) 243-7220; rod.boshart@thegazette.com