Still in the midst of an economically and socially devastating pandemic, Iowa could take another blow to how much money it has available to invest in critical public services and resources.

In a Senate Ways and Means subcommittee meeting yesterday, Sens. Dan Dawson, Janet Peterson and Annette Sweeney signed off on a bill to repeal Iowa’s inheritance tax. Now, the matter is going to the full committee.

Dawson said the estimated impact on the budget would be a loss of approximately $86 million and possibly more as that number is based on old estimates.

That means the state loses more than $80 million that could go toward funding schools, health care and other public services or programs, according to Mike Owen, the deputy director of Common Good Iowa.

“It’s going to make our tax system less fair.”

-Mike Owen, deputy director of Common Good Iowa

“It’s going to make our tax system less fair. You have a tax system that’s already favoring the wealthy over the poor. It’s not based on ability to pay,” he said. “Income should not be treated on where it comes from. It should be treated on the amount. If we’re going to have a tax system based on ability to pay, you don’t sort it out.”

The biggest argument, from senators and from people who called in over Zoom, is that the inheritance tax harms small businesses because it applies an additional tax to the people who inherit more than $25,000.

Eliminating Iowa’s inheritance tax would mean nonlinear heirs like nieces and nephews no longer have to pay a tax on any assets they inherit.

As of 1997, lineal ascendants—children and grandchildren—were exempt from inheritance taxes.

Most of the people who voiced support for the bill did so because they say it’s unfair to those who are inheriting the wealth of the estate.

Many also pointed out it adversely affects small businesses, but failed to explain how. Or how it poses an insurmountable hurdle.

Iowa is one of six states that has an inheritance tax—Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania are others—and while many people in the hearing tried to use it as reasoning to eliminate the tax, Owen said it’s something Iowa should be proud of.