Gov. Kim Reynolds signs largest tax cut in Iowa history

Democrats say Iowans will suffer from more sales taxes and higher tuition

HIAWATHA — Gov. Kim Reynolds made good Wednesday on one of her first pledges as governor, signing legislation to enact the largest state income tax reduction in Iowa history.

“Today that promise becomes a reality,” the Republican governor said before signing Senate File 2417 in front of lawmakers and other guests at MobileDemand, which provides specialized tablet computers.

When phased in over six years, the $2.86 billion tax cut — larger than the 10 percent across-the-board cut of 1998 — will provide relief “for every Iowan who works hard to earn a paycheck and deserves to keep more of it,” Reynolds said.

It “brings immediate and significant tax relief. It’s simple. It’s transparent. It’s fair for Main Street. Most importantly, it’s sustainable for our state budget … (and) fiscally responsible for the long-term … ensuring that we can fund our key priorities like education, health care and public safety,” she said.

While cutting state income taxes, the new law also projects a sharp increase in sales tax collections. It requires Iowans to pay sales tax for online shopping and digital purchases such as for electronic games and entertainment, travel sites and popular subscription services and ride-hailing services like Uber and Lyft.

Sales tax collections are projected to increase by nearly $725 million over six years, presuming the state can capture the online sales.

SF 2417 passed the Iowa Legislature earlier this year with no Democratic support. And Democrats continued their opposition Wednesday, comparing the law to a “scam” to benefit the wealthy, a shell game that leads to higher tuition and sales taxes and a risk to vital programs like education, health care and justice.


SF 2417 has Iowa “moving backward, not forward,” according to Democratic Sen. Liz Mathis, who represents the Hiawatha-Marion district where MobileDemand is located.

“Most Iowa taxpayers won’t get a tax cut, or see very little cut in their taxes,” she said. “Our revenues are already low and we’ve cut things that help the state grow, such as education and help for small businesses.”

The ranking Democrat on the House Ways and Means Committee, Rep. Dave Jacoby, D-Coralville, called the legislation a GOP “tax giveaway” that overwhelmingly benefits the wealthy and special interests, while a third of Iowans will “get nothing or end up paying more.”

“In order to pay for $483 million in new corporate tax giveaways, Republicans are actually raising taxes on everyday Iowans through higher property taxes, raising the sales tax, and increasing tuition at community colleges and state universities,” Jacoby said.

Senate Minority Leader Janet Petersen, D-Des Moines, also predicted the changes will result in property tax hikes and “deep, deep cuts to health care services, job creation and education, and public safety.”

Those Democratic messages were echoed by a handful of people demonstrating outside the bill signing ceremony. Ashley Burns, who has been involved with Indivisible Iowa, said the state should provide more funding for mental health, domestic violence prevention, education and Planned Parenthood.

“Our concern is this tax bill not helping regular Iowans,” she said.

But it is, countered Matt Miller, owner of MobileDemand, a 15-year-old company that is a provider of rugged tablet computers used by mobile workers.

He said the change, coupled with the recent federal tax overhaul “is a really big boost for companies like us.”


“Bottom line, every dollar counts,” he said. “We’re doing really well, but when the tax bill is lower we’re able to do a lot more with it.”

He said he expects to add six employees to his 30-person workforce, invest in technology and improve compensation “maybe by the end of the year.”


The state income tax relief bill signed into law Wednesday by Gov. Kim Reynolds includes triggers that must be met before additional provisions, like a corporate tax cut, can kick in. Here is a state estimate on the average effects on Iowa income tax liabilities compared to current for individuals at various adjusted gross income levels for tax year 2019. Those are the returns filed in early 2020.

Adjusted gross incomeAvg. dollar changeAvg. percent savings
$10,000 or less-$12.9%
$10,001 to $20,000-$1745.2%
$20,001 to $30,000-$5011.1%
$30,001 to $40,000-$868.9%
$40,001 to $50,000-$1167.9%
$50,001 to $60,000-$1387.3%
$60,001 to $70,000-$1627%
$70,001 to $80,000-$1897%
$80,001 to $90,000-$2257.1%
$90,001 to $100,000-$2577.1%
$100,001 to $125,000-$3147.1%
$125,001 to $150,000-$4067.4%
$150,001 to $175,000-$4927.5%
$175,001 to $200,000-$5907.8%
$200,001 to $250,000-$7468.2%
$250,001 to $500,000-$1,91213.8%
$500,001 to $1,000,000-$3,76216.5%
$1,000,001 or more-$6,61415.2%

Source: Iowa Department of Revenue

He told the protesters: “We’re hiring six people this year. The tax cuts are helping our employees; all of the income taxes are going down for every employee.”

Aurora Moes, who with her husband, James, owns Aurora Coffee in Marion and Cedar Rapids, told the governor she’s excited about the tax cut changes.

“We pay taxes. My company pays taxes. A lot of them,” Moes said. “So I’m grateful for this reform because it will help me and benefit my company and benefit my family and it’s going to benefit all of Iowa.”

SF 2417 was approved 28-20 in the Senate and 54-32 in the House with no Democratic support.

Petersen and Jacoby said Democrats were willing to work on tax relief that would balance the state budget, be fair and simple and provide middle class tax relief.

But, Jacoby said, “the GOP tax scam fails on every count.”

Asked about Democratic criticism of the tax plan, Reynolds said “it sounds like they wanted to see Iowans’ taxes raised.”

Without any change, she said, Iowans would have seen their taxes go up because of changes in the federal tax code.


“We weren’t about to let that happen,” Reynolds said. “While some people might not think an extra $50 is very much, I know that every single extra dollar in a paycheck matters. It makes a difference. It’s groceries. It’s gas. It’s new shoes. It’s savings to put away for your kids.”

Reynolds, who faces election in November and will be in Cedar Rapids on Thursday for a campaign event, said she wants Iowans know that Republicans listened to their concerns.

“We heard you. We took decisive action to return your hard-earned dollars to where they belong,” she said.

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Iowa’s New Income Tax Law: How It Works

The GOP-passed tax-cut agreement signed into law Wednesday will be phased in, provided that economic triggers are met before key steps take effect.

Some of the law’s provisions include:

l Triggers are based on reaching or exceeding an annual net general fund growth of tax receipts of 4 percent.

l The law provides tax relief to farmers and small-business owners as well as individuals.

l Federal deductibility — that is, deducting federal tax liability from state returns — for corporate income taxes is slated to be eliminated by tax year 2021, with some exceptions. The phaseout for individual income taxes will be complete by 2023.

l The nine income brackets used for Iowa income taxes now range from 0.36 percent for annual taxable income of $1,628 or less to the top rate of 8.98 percent for taxable incomes over $73,260. It will be revamped to 0.33 percent at the low end, up to a top rate of 8.53 percent in tax years 2019 and 2020, according to a state analysis.

l When fully implemented, as soon as 2023, the plan will reduce the number of individual income brackets from the nine to four.


l The four new brackets will begin with a low rate of 4.4 percent for incomes of 6,000 or less and have a top rate of 6.5 percent for Iowans making $75,000 or more.

l The top corporate rate will be lowered to 9.8 percent from the current 12 percent.

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