Capitol Notebook: New study touts benefits of Iowa tax cuts

A study from a pro-business think tank says Iowa’s state income tax cuts will create an estimated 6,800 jobs in 2025 and increase the state’s GDP by $1.72 billion over the next decade.

Gov. Kim Reynolds last month signed a nearly $1 billion tax cut into law that lowers the state’s individual income tax to a flat, single rate of 3.8 percent in 2025.

The measure, Senate File 2442, accelerates and further lowers previously planned income tax cuts passed in 2022. Iowa’s current top income tax rate is 5.7 percent and would have dropped to a top rate of 4.82 percent in 2025 and then to a flat rate of 3.9 percent starting in 2026. The 2022 tax change also created a mechanism to ratchet down the corporate income tax rate to a flat 5.5 percent over time as certain revenue conditions trigger rate buydowns. Iowa’s top corporate tax rate now is 7.1 percent.

The top individual income tax rate was 8.98 percent when Reynolds, a Republican, took office in 2017. Republicans have pushed state income taxes lower since they gained control of the lawmaking process, securing majorities in both chambers of the Iowa Legislature and the governor's office in 2017.

Iowa’s tax revenues largely have stayed robust as the tax cuts have taken effect, leading Iowa Republicans to call for deeper cuts.

The Legislative Services Agency projected that acceleration would lower state revenue and provide state income tax savings by an additional $328 million in the 2025 budget year, $605 million in fiscal 2026 and roughly $100 million annually over each of the next four years, for a total of more than $1.3 billion over the next six years.

The reductions would be funded by the state’s $2 billion general fund surplus and the state’s Taxpayer Relief Fund, which is projected to have a balance of over $3.7 billion at the close of the budget year.

“Despite challenging national headwinds, Iowa’s economy is steady and strong,” Reynolds said in a statement Monday of the study by Common Sense Institute Iowa.

The non-partisan research organization says it is “dedicated to the protection and promotion of Iowa’s economy.” The group’s board of directors includes representatives from the Iowa Business Council, Cedar Rapids Metro Economic Alliance, Iowa Association of Realtors and Iowa Bankers Association, among others.

“The CSI study shows that Republicans’ conservative budgeting practices are paying off for everyone, even those who don’t pay income tax,” Reynolds said. “Our common sense policies are creating jobs and putting more money in the pockets of hardworking Iowans just as intended.”

The study asserts lowering taxes will generate economic activity benefiting Iowans, regardless of whether they pay income taxes.

Other key findings include:

Opponents argue the tax savings come at the expense of underfunded public schools and health care, water quality, roads, bridges and other services across the state.

House and Senate Democratic leaders have said further income tax cuts would disproportionately benefit the wealthy, who receive the largest windfall from the falling tax brackets, and give no financial relief for the thousands of Iowans who pay no income taxes.

The full study from the Common Sense Institute Iowa is here.

Reynolds issues storm disaster proclamation

Gov. Kim Reynolds issued a disaster proclamation Monday for Kossuth and O’Brien counties in Northwest Iowa in response to severe weather.

The National Weather Service confirmed a tornado briefly touched down Friday afternoon in Sheldon. The tornado peeled off roof panels on three buildings and flipped multiple recreational vehicles. The weather service rated the tornado an E-F0 with maximum estimated winds of 85 mph and a width of 75 yards. Surveys indicate it tracked for nearly a mile. No injuries or fatalities were reported.

The governor's proclamation activates the Iowa Individual Assistance Grant Program and Disaster Case Advocacy Program.

The state program provides grants of up to $5,000 for households with incomes up to 200 percent of the federal poverty line for expenses incurred by the severe weather. Affected Iowans can apply with the Iowa Department of Homeland Security, and applicants have 45 days from the date of the proclamation to apply.

For information on the Disaster Case Advocacy Program, contact your local community action agency or visit iowacommunityaction.org. Disaster case advocates work with clients to create a disaster recovery plan.