Des Moines, Iowa — Governor Kim Reynolds says her four percent flat tax plan would make Iowa’s income tax system simpler and might one day lead the way to zero percent — no state income tax.
During an interview Wednesday afternoon, Reynolds made it clear zero percent isn’t something she’s proposing this year. She’s set four percent as the goal to reach by tax year 2026.
Five years ago, Reynolds signed a bill that was, at the time, the largest tax cut in state history. It reduced the top income tax rate to six-and-a-half percent and got rid of a deduction that made Iowa’s top income tax rate appear higher than it actually was when compared to other states. The plan Reynolds has released this week retains current deductions, like the one for charitable donations, and tax credits.
Ten other states have a so-called flat tax, including Illinois and Michigan.
Iowa does not tax Social Security benefits, but another component of the Republican governor’s tax plan calls for no longer charging the state income tax on other types of retirement income. Reynolds says Iowa loses many retirees to other states that don’t tax pensions.
Farmers would get a tax break, too, in the Reynolds tax plan. Reynolds says it’s written in such a way so that out-of-state investors who own farmland couldn’t be able to claim it. Iowa residents who’ve retired after being actively engaged in farming for at least 10 years would be able to receive cash rent on their land without paying taxes on that income.
Reynolds has for weeks promised she’d reveal her tax cut plans during the annual “Condition of the State” address to legislators and the governor says it was clearly a surprise to some lawmakers.
The governor’s fellow Republicans occupy 92 of the 150 seats in the legislature. While GOP leaders haven’t guaranteed passage of the governor’s flat tax proposal as is, they’ve made it clear the plan is the basis for their tax policy debate this year. Democrats say a flat tax is unfair and would provide a big tax break to wealthy Iowans while forcing some low income Iowans to pay more.