Tax reform. Iowa legislators, both republicans and democrats, are proposing sweeping changes to Iowa's tax laws. We're questioning the chairmen of the General Assembly's Revenue Raising Committees, democratic Senator Joe Bolkcom and republican Representative Tom Sands on this edition of Iowa Press.
Borg: At the Iowa Statehouse these days the bottom line is the bottom line. As Governor Terry Branstad and state legislators are crafting next year's state budget taking effect this July 1st there's a lot at stake. Republicans interpreting their big wins in November's elections are moving legislation cutting both state spending and taxes. Democrats are counting on their slim majority in the Senate for preserving some of the programs enacted when democrats controlled state government. Last week on Iowa Press the Speaker of the Iowa House of Representatives, Hiawatha republican Kraig Paulsen, told us that he is more optimistic for broad based tax reform during this session than at any other time in his legislative career. We're following up on that statement with the chairs of the Tax Writing Ways and Means Committees, Iowa City Democrat Joe Bolkcom and Wapello Republican Representative Tom Sands. Gentlemen, welcome to Iowa Press. We're eager to hear what you have to say about taxes.
Bolkcom: Thank you.
Sands: Good to be here.
Borg: And across the table, Iowa Statehouse journalists Mike Glover of the Associated Press and Radio Iowa's Kay Henderson.
Glover: Representative Sands, let's start with you. It is happening in Wisconsin right now but it's happening in states across the country. In Wisconsin the governor has said, we can't afford this contract for state workers and we're not going to live up to it. Is that where we're headed in Iowa? In Iowa the governor has said, we can't afford this contract.
Sands: I think there's a lot more peaceful discussion going on here in Iowa. One thing about what the message seemed to be from Iowans across this state is government has outgrown its means, it is living outside its means, the private sector has to live within its means, we as individuals are living within our means, that government needs to bring that spending back in. The House republicans are in agreement with Governor Branstad that we need to look at a more efficient government, still looking to provide the services that are needed but we are on a chart to bring government more efficient and lower the tax burden on Iowans.
Glover: Senator Bolkcom, same question to you. Is that where Iowa is headed?
Bolkcom: Well, I think we need to recognize the backbone of the state of the workers of this state broadly and we need to do everything we can to make them strong as we come out of this recession. That is why I'm really excited this week that the tax cut package we passed unanimously in the Senate will provide 240,000 Iowa families making less than $45,000 a year a tax cut, a group of taxpayers that have been hurt hardest by the recession. At the same time from the republicans we've seen a proposal to eliminate preschool, eliminate job creation programs, close Workforce Development centers, cut 21,000 people's kids off of our healthcare roles all to create a slush fund to give corporate tax breaks to large, out-of-state corporations and Iowans making more than $250,000. I think our priorities couldn't be more different.
Glover: Representative Sands, we seem to have strayed away from the question here. The question was can the state afford a contract for state workers? Should we breach the contract and cut what state workers are getting?
Sands: Well, I think it is extremely unfortunate that Governor Culver, on his way out of town, negotiated a contract that everyone knew that was at that table that could not be afforded.
Borg: Is it going to stand? That is the question.
Sands: The question is, once the contract has been signed and agreed to really about our only choice is, the legislature, whether we can fund it or not ...
Glover: Will you?
Sands: No because the money just simply isn't there.
Glover: Representative, Senator Bolkcom, excuse me, is Chapter 20 justified? Public workers do pretty well in this state compared to their private sector counterparts. Is Chapter 20 justified? Does it need to be looked at?
Bolkcom: I think it is justified. This was put in place by republicans when republicans controlled the General Assembly and the governor's office back in the 70s, I think it still works. Trying to just drive down the working people in this state is not a solution for the state's ...
Glover: Will you tear up the contract with state workers?
Bolkcom: I'm sorry?
Glover: Will you tear up the contract with state workers?
Bolkcom: No, I won't tear up the contract with state workers. State workers bargained in good faith for the benefits in that contract and the state ought to stand by its commitment to support what we agreed to.
Henderson: Senator Bolkcom earlier raised some issues about some of the tax policy pending and we will get to tax policy, gentlemen. But one of the other issues that has been the talk of the town, at least in Iowa City over the past week, is a proposal percolating among House republicans to sell a valuable painting at the University of Iowa. Is that something when it comes up for a vote in the Iowa House of Representatives that you would vote to do?
Sands: I will listen to the constituents back home on what their needs are. Unless somebody wants to tax the painting I don't think we'll see that in the Ways and Means Committee. Out on the House floor if that ends up being a final vote for the entire legislature is yes, in this time, if my constituents believe that money is better or that painting better to be sold and reinvested in children then I would support that.
Henderson: Senator Bolkcom, you're from Iowa City where that painting is located.
Bolkcom: I think it's a terrible idea. It will dry up any further donations of artwork or financial contributions to our art programs, to our art museum and maybe even to the University of Iowa. I think it's time to move on. The idea of selling this painting is bringing terrible attention to the state and it's time to move on. This is an asset that Iowans are proud of and we should hold on to.
Glover: Representative Sands, can we talk tax policy now?
Glover: The House has passed a 20% cut in the state's income tax that legislative staffers say would cost about $704 million per year. On this program last week your Speaker Kraig Paulsen said he figures there is about $383 million available in total for tax relief, some of which has already been spent. Why are you passing a $700 million tax cut when you've got $383 million available for tax relief?
Sands: Simply there is not a cost when you let people and Iowans keep their own money but the fiscal note on the fiscal year 2012 actually is $330 million.
Glover: That's for half a year, the full year is $700 million.
Sands: Correct. But tax year and budget year that we work off of is two different things. So, on the budget we are proposing it is actually only $330 million so there is room to do that. And my caucus has been very clear up front that we are more interested in having broad based tax reform for all Iowans and small businesses to grow this economy, put people back to work because there are over 100,000 Iowans out of work that want to know if they're going to have a job next week so they can support their family.
Glover: Senator Bolkcom, let's go to you. Tax cuts are on the table this year in both chambers. As chair of the Senate Ways and Means Committee, what is on the table and what is off the table?
Bolkcom: Well, just this week unanimously we passed $150 million tax cut, as I said, 240,000 working families. We also provided tax cuts and some incentives to small and large businesses to invest in equipment and machinery right now to create jobs in our state. We think that investment in job creation, which is really the focus of democrats in this session, we're evaluating every proposal as to whether or not it creates jobs and we think the package we passed this week is a balanced, pragmatic set of ideas that are going to create jobs in our state.
Henderson: Math is hard but if you add $330 million plus the $47 million that the House has already passed in property tax relief related to education that leaves you $6 million. Is that the extent of the property tax relief package that House republicans will pass, $6 million?
Sands: No, actually there will be a substantial property tax reform package coming out of the Iowa House this year. The one thing about property taxes is with them being paid in arrears and the way the bill is written there isn't a fiscal impact for 2012, number one. Number two, ways and means is a little bit different than appropriations, we don't know for sure what ways and means bills are going to become law. When you're on appropriations side you know we're going to balance a budget, we have to by Iowa law. So, what my job is, is to bring enough tax proposals forward out of the committee to get that into the hopper, per se, for the overall package to be looked at by our caucus and by the end of the year but no, there is still room and we will be bringing a property tax reform bill out of the House.
Henderson: Define significant.
Sands: The three main criteria that I believe that a property tax reform bill has to have is just what the bill does. Now the bill might be tweaked just a little bit and changed but division number one goes dollar for dollar property tax reform. In other words, it picks up more, the state picks up more of the school aid formula which starts equalizing the school levee across the state, not completely but it starts that and every dollar you put into that it's a dollar property tax relief for the property taxpayer. Division number two goes to the very question of what property taxes should be used for across this state in local government, which it does. And number three, tries to cap and limit the overall growth of taxable value over the years.
Henderson: Senator Bolkcom, do senators have an idea of the size and scope of the property tax relief package that will move through the Senate?
Bolkcom: Well, let me just say, I think Representative Sands really has his hands full with his Ways and Means Committee in the House. We have counted more than $1.5 billion in proposals coming out of that committee to either spend money or to cut taxes and you have to ask, how do you balance a budget in that environment.
Borg: Why are you saying that he has his hands full?
Bolkcom: Well, I just think he has a pent up demand, Dean, of new members and folks, the democrats have been running the tax policy for the last four years and the republicans control the Iowa House and there is members that have ideas and when members get to Des Moines they write bills and so he's got his hands full in trying to figure out, I think, what comes forward. That said, we are working on a commercial property tax relief bill in the Senate, it's probably going to be more modest that's been proposed by the Governor, for example. But ours is really going to be focused on Main Street Iowa businesses who need help like Fat Daddy's restaurant on the square in Marengo, Iowa and smaller businesses and our proposal is going to be targeted on them, not on big insurance companies in downtown Des Moines who, frankly, don't need the relief.
Borg: Will you keep federal deductibility on income tax or is that up for debate this year?
Bolkcom: Well, you know, Dean, we had that debate a couple of years ago. Our proposal would have provided a tax cut to two-thirds of Iowa working families and we couldn't get the votes to get that passed. Given the new political dynamic I don't think there will probably be much time spent on that.
Borg: Do you agree with that, Representative Sands?
Sands: I agree with that it won't be up for debate this year.
Glover: Representative Sands, one of the suggestions that has been floated, in fact it has come up at the Governor's Office, is to take a look at the gas tax either this year or next year. Is the gas tax on the table or off the table?
Sands: I would say this year for sure that it is off the table largely because we see rising gas prices across the state and every time gas goes up it just takes more money out of people's pockets so it's off the table this year.
Glover: Senator Bolkcom, same question to you, gas tax on or off?
Bolkcom: I personally support the gas tax and it really is a bipartisan, there is bipartisan support for it but I don't think it's going to advance this session talking to leaders and the like so I don't see it happening this year.
Henderson: But the Governor suggested to a group of folks who would like to see the gas tax raised, folks who advocate on behalf of highways 20, 30, 34, he said maybe next year in an election year. Do you think an election year legislators would vote to raise the gas tax?
Bolkcom: I thought the Governor's logic was quite strange on this actually. Kay, I think typically when we raise taxes we do it in the first year of the session and then we go campaign the second year about all the good things we did. So, I think it gets harder next year.
Henderson: Well, his point was that if you want a gas tax increase folks who build roads and use roads build public sentiment for a gas tax increase. Do you think there is building public sentiment, Representative Sands, for a gas tax increase?
Sands: I think that is very important that if and when the gas tax does get raised it has to have public sentiment built up and it is going to take different groups going out there and building that and showing the need for it.
Henderson: Talking about public sentiment, is there growing public sentiment to raise the tax on Iowa's state licensed casinos? The Governor has suggested it go from about 22% to 24% all the way to 36%. Is that going to happen?
Sands: The Governor has talked about that to offset his corporate tax decrease and in my, back in my district I am not hearing people tell me to raise taxes, most of them are really more interested in lowering their own tax burden and their property tax burden.
Glover: Senator Bolkcom?
Bolkcom: I don't think we're going to find common ground on that proposal from Governor Branstad. It does create a challenge to people doing the budget because the Governor has put $190 million of revenue into the equation.
Glover: It's $190 million. If you don't get it by raising casino taxes where do you get it?
Bolkcom: Well, I think, you know, he has also put a couple hundred million in for corporate income tax cuts so we'll have to negotiate on making this budget balance.
Glover: Representative Sands, same question to you, that is $190 million. You don't want to raise the casino tax. Where do you get the money if you don't?
Sands: I've had conversations with Governor Branstad early on and will continue to have conversations because House republicans, as you know, passed a 20% individual income tax cut. We're looking at property tax cut. Governor Branstad has looked more at the commercial property tax and then has looked more at the corporate tax structure. I think the most important thing is we all want to end up at the same part or point. We want to end up with a more friendly tax structure for Iowans. We want to end up with a leaner and meaner state government and we want to put Iowans back to work. And that is where we're going to go. How we get there, we've got several weeks to figure that out.
Glover: To be clear you're not going to support the casino tax increase?
Sands: If you look at my voting record I don't think you'll be able to find anywhere where I voted for a tax increase.
Glover: Same thing to you, Senator Bolkcom, you won't support the casino tax increase?
Bolkcom: Mike, I don't see common ground, I just don't think people are going to come together and there's going to be support to move this forward.
Borg: Senator Bolkcom, there are some niche needs too and I'm thinking about flood rehabilitation in Cedar Rapids. You're from Iowa City and you know what floods are like there because there's some rehab going on in Iowa City too. Cedar Rapids is the big city in Linn County and it is wagging the dog for a 20 year sales tax extension, local option sales tax for building flood protection in Cedar Rapids. Also asking Ron Corbett, Mayor of Cedar Rapids, asking for some concessions too from the state legislature. Can you tell me what is likely -- is he likely to get anything?
Bolkcom: Well, Mayor Corbett visited the Statehouse this week and did a nice job presenting the needs of Cedar Rapids. And, as you know, the General Assembly has been supportive over the last two years in providing more than $100 million in support to help Cedar Rapids rebuild. There is no question we need to continue to give a hand to Cedar Rapids. They need about $200 million over the next 20 years for a flood wall on the west side of their community. I am going to be working to try and find those resources, working with colleagues to figure out a package of resources to make that happen.
Borg: Will there be something coming out of the Ways and Means Committee or where will that originate?
Bolkcom: Well, I think there's a number -- they have a specific proposal to capture sales tax revenue. I think there is more than one way to find the financial support they need and so we'll see if that is a tax issue or something coming out of the RIFF fund, for example, our infrastructure fund.
Borg: Representative Sands, does that resonate with you?
Sands: Right now, Dean, there isn't any bills in the Ways and Means Committee to address that and I haven't even had any conversations with former Speaker Ron Corbett or Mayor Corbett on his proposals. So, if something comes forward we will take a look at it but we've really been more concentrated on our broad based tax reform packages.
Glover: Representative Sands, a few years ago the legislature debated a package that would overhaul the state's income tax system. Senator mentioned it earlier. Is there any impetus at all to sort of start from ground zero and re-work Iowa's income tax system, take another look at who is paying what and who ought to be paying what?
Sands: Well, I think that is always on the table to do what you can. This year there is a lot -- there's a lot going on out there and it seemed to us that it made more sense to just give everybody that files on the individual tax bracket a 20% reduction in their taxes, that is where most small businesses file their taxes so I am excited to hear Senator Bolkcom is interested in small business relief. So, we're more concentrated on that and getting that to become law and we'll be continuing to look at that in the future years.
Glover: Senator Bolkcom, same question to you, you are chair of the Senate Ways and Means Committee, is it time to step back, look at Iowa's income tax system and say let's look at who is paying and who should be paying?
Bolkcom: Yeah, I think it is, Mike. Our proposal a couple of years ago was going to try and reset the clock on who paid and the fairness of the system. Right now if you work at a convenience store you pay a greater percentage of your income than somebody that works as a nurse at the hospital and that nurse at the hospital pays more percentage of her income than the store manager at Hy-Vee and we have an unfair system now. Our proposal in the past tried to address that and make it based on people's ability to pay. There is really no conversation about that. The 20% income tax reduction passed in the House this week actually exacerbates it. Most of the benefits go to the top 15% of Iowa income earners now, hardly any benefit to people making under $50,000 a year and it will just, it will make the system even more unfair.
Glover: And you won't even debate that in the Senate?
Bolkcom: That bill has probably a fairly steep uphill climb in the Senate but we're going to take a look at it.
Borg: What about property tax, comprehensive review? You talked income tax here but what about property tax? We have ag land, we have corporate property and we have small business property, commercial property. Any idea that there's going to be a comprehensive review and re-look at all of that this session?
Bolkcom: Well, we've had a number of comprehensive reviews and what we always come back to is some tinkering around the edges because if you're going to do a comprehensive review you've got to get agriculture, commercial and residential folks all into the same room, all unhappy at the same time and the way the system works now agricultural interests are not especially unhappy. So, you can't have that broader conversation. Our commercial proposal, which I mentioned earlier, is going to focus like a laser beam on small businesses to give them relief on Main Streets across this state. The Governor's proposal is more grandiose than ours, he wants to reduce taxes by 40% on all commercial businesses including places like Best Buy and big downtown insurance companies in Des Moines and what is going to happen with his proposal is when you take away those commercial taxes somebody else is going to pick up the bill and it's likely going to be an increase in residential property taxpayers.
Borg: Representative Sands, do you agree with that analysis? And is something likely to come out of House Ways and Means?
Sands: One thing I know for sure that will not happen this year is there will not be another study group on property taxes because we have studied that and studied that and studied that.
Borg: Does that mean there's going to be action?
Sands: That does mean there will be action. I can almost -- I can guarantee you that there will be a property tax bill come out of the Iowa House, out of the Iowa Ways and Means Committee and I believe I've heard Speaker Paulsen say out of the Iowa House and I disagree that the farmers are treated unequally or more fairly because to tell you the truth if you go out and talk to the farmers on the amount of property taxes they pay it has become a very substantial amount. So, we're looking at property tax relief for all individuals.
Glover: Will you pass the Governor's proposal on commercial property taxes?
Sands: We'll certainly take a look at it with our other proposals. We have went down more the road where we're looking at more property tax relief for all property tax classes, not just commercial and by doing that you lower commercial as well. But we'll take a look at the Governor's proposal and see how that generates through the caucus.
Glover: Senator Bolkcom, I just haven't heard a lot of buzz about the Governor's proposal on commercial property taxes. Is that just a non-starter?
Bolkcom: Well, it is hard to figure out how to pay for it in terms of if you're going to take $500 million away from local communities that provide services. My judgment is that it will just shift the taxes off of commercial property taxpayers onto residential property taxpayers. I think as a result it's going to be hard to move that proposal forward.
Henderson: Representative Sands, the Governor has made a specific proposal in regards to corporate income taxes, cutting them in half. Is that something that House republicans plan to embrace?
Sands: It is something, there again, that we're going to take a look at. Neither one of his tax proposal bills actually have come down yet so they are both in concept and, as you know, the Devil is always in the detail but we want to see them in writing.
Henderson: Is one of the drawbacks of that, that it doesn't provide relief to smaller corporations, that the benefit is largely to larger corporations?
Sands: On his proposal, from what I understand, is that it would make it a flat tax, a flat six percent on corporate taxes.
Henderson: Senator Bolkcom, do you think that his proposal targets large rather than small corporations?
Bolkcom: This week we passed more than $100 million worth of corporate tax cuts for investment right now in machinery and equipment to create jobs. The Governor's proposal is a couple hundred million of relief, 80% of it going to large out-of-state corporations. I don't think that is what is going to be good to create jobs in Iowa, I don't think that is the kind of policy that helps us to move the state forward. And so I think that we feel like our proposal that we moved this week in a unanimous way in the Senate is going to be a better option for Iowa businesses.
Glover: Representative Sands, just this past week a person pleaded guilty in the film tax credit scandal. Have you learned your lesson on tax credits?
Sands: Well, if it taught us one lesson what it taught us was you do not take a bill, rush it through the legislature, set up no oversight and let it run free reign because that is what happened and the result was it was abused and so that was learned for sure.
Glover: Senator Bolkcom, same question to you, have you learned your lesson on tax credits? That one seemed to have gone awry and it is suggested that others have too.
Bolkcom: Yeah, I was always kind of skeptical of that proposal when it came down but sometimes in the legislature the next newest thing since sliced bread arrives and you pretty much just have to get out of the way. And that was obviously a mistake, a whole bunch of states are finding the same problem.
Borg: After what Representative Sands said about rushing things through I'm a little curious here about whether or not I have the ability to close this program. We're out of time so thanks very much for being with us today. We'll be back next weekend at the usual times, 7:30 Friday night and 11:30 Sunday morning. I'm Dean Borg. Thanks for joining us today.