Des Moines, Iowa — A plan to shrink Iowa’s personal income tax to one rate of three-point-nine percent by 2026 has cleared the Iowa legislature with the votes of 89 Republicans and four Democrats.
The bill also eliminates the state tax on retirement income and creates a new tax break for retired farmers. Senator Dan Dawson, a Republican from Council Bluffs, says state tax revenues have soared above expectations and it’s time to seize the opportunity.
Representative Lee Hein, a Republican from Monticello, guided the bill through House debate.
Democrats say the state has excess cash on hand because of the influx of federal pandemic relief money. Others, like Senator Pam Jochum of Dubuque, say a flat tax primarily benefit the wealthy — and trickle down economics doesn’t work.
Representative Lindsey James, a Democrat from Dubuque, says Iowans living paycheck-to-paycheck will get little, if any benefit.
Democrats accused Republicans of rushing the bill through because Governor Kim Reynolds will be giving the Republican response to President Biden’s State of the Union Address Tuesday night.
That’s Senator Tony Bisignano, a Democrat from Des Moines who voted for the bill because it eliminates the tax on pensions and other retirement income. Governor Reynolds issued a written statement Thursday night, using words like bold and transformative to describe the bill, which she intends to sign in the next few days. House Speaker Pat Grassley says the bill sped through the legislature Thursday because it’s a priority.
Senate Majority Leader Jack Whitver, a Republican from Ankeny, says the plan has been in development for six months and makes Iowa’s personal income tax rate fourth lowest in the nation.
The bill sets up a mechanism that could shrink the state’s corporate income tax to a single rate of five-and-a-half percent, but the bill also reduces some business tax CREDITS that are refundable. Whitver says that’s a remarkable step forward.
Representative Dave Jacoby, a Democrat from Coralville, says reducing the state’s research activities credit may be the wrong move.
The centerpiece of the bill, however, is the reduction in personal income taxes. Republicans say every single Iowan will have more money in their pockets as a result. Democrats say a Department of Revenue spreadsheet indicates 30 percent of tax filers will not see any reduction in their income taxes.
