Huge news broke on Thursday. After two months of delay, the final piece fell into place to match federal tax law. As previously written, the first order of financial business the Legislature should handle is to match federal tax policy in regard to the so-called extenders. The largest of which is the Section 179 provision, allowing farmers and small businesses to expense larger capital purchases and not schedule them.
House and Senate Republicans were supportive immediately, while the Governor and Senate Democrats decided to not couple. This would have caused a one year, $96 million tax increase on Iowa’s economic engine. One month ago the Governor heard from Iowans and decided to join the House to couple with federal law. As I write this, Senate Democrats joined and decided to make coupling happen.
It is unfortunate it took until March 10, as this is after the original deadline for farmers to file their state income taxes. The deadline has been extended until April 1, as this issue dragged on throughout February. It would have been wrong to change the multiyear pattern of allowing single year deductions of major purchases after the purchase were made in 2016.
Going forward, I hope your Legislature does one of a few things. We could make Section 179, along with the other extenders, permanent in Iowa tax code. We could make the decision to allow expensing in the same year as the expenses, which means businesses and farms have the information ahead of time, or we could put in law that we automatically match Washington, who makes the decision ahead of us, during the tax year that is impacted.
Whichever it is, the taxpayer should be the one with the information to make the decisions not at the mercy of the legislature, as they are now.
As we end the second funnel week deadline, we will move to a more budget focused agenda. The next piece of information we need will come from the Revenue Estimating Conference which meets on March 16. This will be an important meeting for schools and human services recipients.
Iowa sets its budget on estimates of incoming revenue during the fiscal year. When the Legislative session begins in January, the REC has already met in December and work has already started on budget analysis and planning.
Iowa law provides we use the December REC to build our budget, unless the March quarterly meeting of the REC is lower. This year we think it will be. This means a lot of behind the scenes work on budgets would go back to the drawing board. Time will tell. Until then, I’m just happy for the hard working taxpayers who won this round in Des Moines today.