116 3rd St SE
Cedar Rapids, Iowa 52401
DES MOINES — The state tax on Iowans’ income would be lowered to 3.6 percent over five years for all filers and eventually phased out altogether under a tax proposal unveiled Wednesday by Republican lawmakers in the Iowa Senate.
The Senate GOP tax plan also would eliminate the state tax on retirement income, reduce the state tax on businesses and eliminating some tax credits and exemptions. And it would put funding into the long-starved state fund for recreation, conservation and water quality programs.
When fully implemented, the plan would result in total taxpayer savings — and thus a reduction in state revenues — of roughly $2 billion, Senate Republicans said. The current state budget is just more than $8 billion.
Sen. Dan Dawson, a Republican from Council Bluffs and chair of the Senate’s tax policy committee, said the legislation accomplishes the goals he and his colleagues set for changing Iowa’s tax laws.
“One was to return the money back to taxpayers that is clearly over-collected. Two, to use that money when returning it to build back a better tax code. And three, what’s our vision going forward,” Dawson told reporters Wednesday. “I think this bill that we’re going to produce meets all three of those goals.”
The Senate Republican plan would:
- Gradually reduce state income taxes over five years until, in 2027, there is a flat rate of 3.6 percent. Currently, the highest state income tax rate in Iowa is 8.53 percent, and lower-income workers pay gradually lower rates.
- Restructure the state taxpayer relief fund into a fund dedicated to eventually eliminating the state income tax.
- Gradually reduce the state corporate tax rate over six years until, in 2028, large businesses pay a 7.8 percent rate, down from the current 9.8 percent, and small businesses would pay 5.3 percent.
- Eliminate the state tax on retirement income including pensions and annuities.
- Enact a shift in tax collections to fund the state’s Natural Resources and Outdoor Recreation Trust Fund. The fund was established by Iowa voters in 2010, but state lawmakers in the dozen years since have not enacted the required sales tax increase to fund the program.
Jack Whitver, the Republican Senate majority leader from Ankeny, said he believes the proposal aligns with the tax plan that Republican Gov. Kim Reynolds’ proposed earlier this month.
Reynolds’ plan called for a four-year transition to a 4 percent flat income tax, the elimination of the state tax on retirement income, and a reduction of the state corporate tax rate. She did not propose this year a mechanism to fund the state recreation, conservation and water quality trust fund, but she had in a 2020 proposal.
Majority House Republican have not yet unveiled their tax plan.
“I have been very clear: Our tax plan will not raise taxes for any Iowan,” House Speaker Pat Grassley, a Republican from New Hartford, said in a statement. “Iowa House Republicans will be releasing a tax plan very soon that is similar to the governor’s plan and is simple, responsible and cuts taxes for all Iowans.”
Republicans hold majorities in both the Iowa House and Senate, which along with a Republican in the governor’s office gives them unfettered control of the state lawmaking process.
Sen. Zach Wahls, leader of the minority Senate Democrats from Coralville, called Senate Republicans’ tax plan “another tax giveaway to millionaires and big corporations.”
“The Republican plan would result in higher taxes for hardworking Iowans and the defunding of public education, public safety and health care services,” Wahls said in a statement. “Senate Democrats are focused on putting more money into the pockets of hardworking Iowans. That includes targeted tax cuts for middle class families, expanding access to affordable child care and paid family leave, fully funding our schools, and making job training and apprenticeships available and affordable for all Iowans.”
Whitver said Senate Republicans’ tax plan would not impact state spending because of current surpluses in the state budget.
According to the state’s nonpartisan fiscal services agency, there is projected to be more than $1 billion in the taxpayer relief fund, and the general budget fund is projected to contain in excess of $1.2 billion. In addition, the state’s reserve funds are flush with more than $800 million.
The lost revenue from proposed tax cuts “can be absorbed by the current amount of money we’re taking in,” Whitver said. “We’re at a point where we can’t afford to not do tax cuts.”
Whitver said he plans for the Senate tax plan to start working its way through the legislative process next week, and that he hopes it will be passed early this legislative session. The legislation was not yet officially filed as of Wednesday evening.
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