Tax expert: What GOP tax reform could mean for Iowans
The House GOP tax reform bill now has a path to a floor vote after passing through the Ways and Means Committee Thursday, and the legislation could have implications on Iowan taxpayers, one tax expert said.
According to state data, the median household income in Iowa is close to $55,000 annually. Under the current seven tax bracket system, that income level is taxed at a rate of 15 percent. The plan set forth by House Republicans—which breaks down the brackets from seven to four at rates of 12%, 25%, 35% and 39.6% —would change that.
“Their tax liability will probably go down a bit because now [their rate] drops down to 12%," said Dr. Stephen Gara, director of the School of Accounting at Drake University in Des Moines. "Additionally the increased standard deduction, the amount of income being taxed would be a little less,” he added.
Critics of the bill says it's a tax break for the wealthy and doesn't go far enough in giving tax relief to middle class families. Gara said there is some truth to those claims.
“While overall it’s a tax decrease for the vast majority of taxpayers, the bigger impact will be for those in the higher income stream, primarily because those individuals are currently paying a lot ," Gara said. "So in a way any cut, therefore, is going to affect them in a greater degree."
There are also key child tax credit changes, Gara said.
“The proposal eliminates personal and dependency exemptions and replaces them with an extended child tax credit."
But that extended child tax credit is catered to families with children under 17, not families with, say, college-aged children who are still dependents.
“The trade off is what you’re giving up in the exemption, you’re not getting back fully in terms of the credit," Gara said.
The proposal also plans to eliminate the state and local tax deduction, a move that could spark the state to reconsider how it works its state income taxes.
“Eliminating the deduction for state taxes could also make the burden of paying your state taxes a little higher because you can’t offset them," Gara said. "So that could put more pressure on Iowa to come up with ways to reduce the tax burden at the state level.”
It's important to note, however, that any legislation that would make its way to President Trump's desk will probably look a lot different than the plan now, Gara said.
“There will still be a lot of give and take and compromise going back and forth. Don’t fixate on what’s there now because it will change.”