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Iowa Gov. Kim Reynolds wants to abolish state income tax by 2026
“We see revenue grow, so it works,’ she says at conservative think tank forum
Iowa Republican Gov. Kim Reynolds, saying she is not done cutting taxes, announced Friday it is her goal to abolish the state income tax by the end of her four-year term.
State lawmakers have passed various tax reform measures over the last several years, including establishing a “flat tax” in the state for personal income tax.
“And I can tell you without hesitation, we’re not done,” Reynolds said during a state policy leadership forum in Washington, D.C., hosted by the conservative Cato Institute. “My goal is to get to zero individual income tax rate by the end of this second term.”
Reynolds, Iowa’s first female governor who was reelected in November to a term expiring in 2026, received the highest grade for fiscal responsibility among the nation’s governors in a report issued last year by the institute. The biennial report grades governors on their fiscal policies from a limited government perspective, and awards higher grades to governors whose states have cut taxes and spending, according to the Cato Institute.
The report noted the tax cut legislation passed by Iowa lawmakers and signed into law by Reynolds in 2018, 2020 and 2022, the final of which will phase state income taxes down to a flat rate of 3.9 percent by 2026 — meaning every resident with a taxable income will be in the one remaining tax bracket regardless of what they earn.
At that point, the cuts will reduce Iowans’ state income taxes — and thus also reduce state revenue — by nearly $2 billion annually.
Reynolds and lawmakers also dropped the Iowa corporate income tax rate from 9.8 to 5.5 percent, and eliminated state tax on retirement income.
Democrats argue the wealthiest Iowans will receive the greatest share of benefits, while Reynolds and Republicans say the law will attract new residents and make the state more competitive.
“I think Iowans know better what to do with their money than government,” Reynolds said. “When you let Iowans decide what they’re going to do with their money, we see communities flourish, we see the state flourish, we see revenue grow, so it works.”
Seven states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming — have no state income tax. New Hampshire does not tax earned income and is currently phasing out a tax on interest and dividend income. Washington similarly does not have a traditional income tax, instead taxing capital gains of income of high earners.
“Seems like a radical idea, but as you know there’s nine U.S. states that don’t have individual income taxes. And the interesting thing about them is they’re in all different parts of the country and there’s red states and blue states,” said Chris Edwards, Kilts Family chair in fiscal studies at the Cato Institute. “They all managed to survive, and indeed all the states that have no income taxes are prospering and generally have high economic growth rates.”
Hearkening back to her Condition of the State address from January, Reynolds argued the tax cuts have helped Iowa better meet the current national economic challenges, while still adequately funding state programs and making large investments in K-12 education, broadband and public safety.
Iowa, though, continues to grapple with a workforce and affordable housing and child care shortage.
Reynolds also defended her successful push creating universal state-funded scholarships that Iowa families can use to send their children to private schools. The nonpartisan Legislative Service Agency estimates that the program, when fully phased on, will cost $345 million a year.
The governor argued the law will give more options to parents and increase the quality of education for all students.
Opponents say it will siphon money from public schools to fund private institutions that aren’t subject to the same oversight, and devotes tax money to private schools that could reject students with disabilities or families whose values don’t align with theirs.
Reynolds pushed back on the notion of a lack of accountability of private schools, noting the law includes a provision requiring students in private schools that use an education savings account to take all applicable federal and state assessments.
“I wanted to know what some of the outcomes were in investing in (education savings accounts) and giving parents choice over funding the student and not the system,” Reynolds said. “But I want to know some of those metrics. We can aggregate the data, but I want to know how they’re scoring, what they’re doing (and) how they’re doing. And we’ve just got a small set of additional metrics that we’ve added to that.”
Iowa lawmakers this week, however, advanced a bill to loosen testing requirements for students taking advantage of the just-passed program.
Under House Study Bill 138, state-required assessments would be optional for students using the education savings accounts, rather than required. The students still would be required to take all federally required assessments, including the Iowa Statewide Assessment of Student Progress.
Iowa Democratic leaders in the House and Senate decried the move, with House Minority Leader Jennifer Konfrst, D-Windsor Heights, telling reporters, “I told you so.”
“This is what we said would happen with school vouchers, that private schools would continue to get away with not following the rules, and not following along and not being held accountable,” Konfrst said. “We’re not even three weeks out from passing vouchers, and we’re already removing accountability from our private schools.”
Asked about Reynolds’ appearance at the Cato Institute forum, Konfrst accused the governor of catering to corporate and special interests and wanting to build her national profile among Republicans.
Senate Minority Leader Zach Wahls, D-Coralville, echoed Konfrst.
"We know that the No. 1 goal of the Iowa Republican Party is the sustained attacks on our public education system,“ Wahls told reporters Thursday ahead of Friday’s forum. ”That is a goal that is shared by Republicans in Washington, D.C. That is why people from Washington, D.C., have flown to Iowa to take selfies with the governor behind the Iowa Senate on the night the (law) was passed and why they bankroll challenges to some Iowa Republicans in the House and Senate who oppose this plan.
“So again, I just another perfect example of Republicans putting politics over the people of the state,” Wahls said.
Reynolds last year took the rare measure of endorsing primary challengers to several Republicans who opposed the private tuition bill, successfully ousting several GOP incumbents, including former House Education Committee chair Dustin Hite of New Sharon.
Reynolds said it was a move she did not take lightly.
“I was either going to stand by and continue to be an enabler and not get this legislation passed,” or intervene to give “all parents the choice to decide what environment they want their child to receive their education,” be that public or private.
“I truly believe with all of my heart it elevates education overall,” Reynolds said.
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