Federal Deductibility Debate Is About The Rich

Republican Rhetoric on Federal Deductibility Is About The Rich

Republicans are responding to the effort to restructure Iowa's income tax system to help working families and eliminate federal deductibility in typical fashion: with a simplistic slogan ("Tax on a tax") and a screaming performance at a conservative-packed legislative hearing Tuesday night.

But once you actually LOOK at the proposals, you see why the Republican puppet masters are so upset. The Iowa Policy Project notes (.pdf):

Federal deductibility overwhelmingly benefits higher income taxpayers, since most low-income taxpayers don’t pay any federal taxes. A 2003 analysis of Iowa’s income tax system found that 80 percent of the benefits from federal deductibility went to the wealthiest 20 percent of Iowa taxpayers.

My own anecdotal example: The federal refund goes to cover what I owe the state. This plan also helps a working dog like me with kids this way:

The child and dependent care credit allows eligible taxpayers to receive a credit for a portion of their child care expenses. This proposal would increase the size of the credit and expand it to families earning between $45,000 and $50,000 who are currently ineligible for the credit.

That's in my ballpark. So I have a self-interest here. But so, apparently, do wealthy Republicans, as the Legislative service Bureau notes:

The income tax reform plan proposed by legislators would reduce average taxes for Iowans earning below $125,000 — but would be revenue neutral for the state because it would increase taxes for those earning above that level.

Revenue neutral. So calling the elimination of federal deductibility a "tax increase' is disingenuous. It's an increase for those more able to pay, and a decrease for people who need the help. Which, of course, is exactly why Republicans are so vehement. Watch out, Ways and Means--you've got a Gucci riot on your hands.

Whatever happened to the old Republican rhetoric about government red tape and paperwork? (Who would have ever thought I'd be nostalgic for Reagan?) Maytbe an enterprising conservative can calculate the accountant-hours this simplification of the tax code would save.