Taxpayers across the country are very likely to face a number of federal tax increases in the coming year. At least for taxpayers in Iowa, they can rest assured that they will not be facing any tax hikes at the state-level.
In her Condition of the State Address, Gov. Kim Reynolds assured Iowans that they would not see any state tax increases this year. “And remember, that unlike many states we’re starting from a good financial position,” explained Gov. Reynolds. “We aren’t looking at tough budget cuts and we’re certainly not looking at raising taxes.”
And making that promise even better, Gov. Reynolds said she would like to build on her pro-taxpayer reputation by delivering more tax relief. In 2018, Gov. Reynolds signed the largest state tax cut in Iowa history into law. Once fully implemented, that pro-growth tax reform package will provide Iowans with $2.1 billion in tax relief.
That tax law reduced the rate of every single one of Iowa’s nine individual income tax brackets. This has been a huge win for individual taxpayers and families, as it allowed them to keep more of their hard-earned paychecks. It was also a big victory for small businesses, which file their taxes under the individual code, as it allowed them to invest more resources in jobs and higher wages.
In 2023, that law could do even more to help taxpayers and make Iowa a more attractive place to live, invest, and do business. Once fully implemented, it will reduce the number of individual income tax brackets from nine to four and lower the top rate from 8.53 percent to 6.5 percent. The catch here is that this component of the bill is subject to certain revenue triggers being met. While official projections have Iowa coming very close to reaching those triggers, if they fall even the slightest bit short, the tax cuts will be delayed.
Gov. Reynolds would like to guarantee that relief is provided and maybe go even further. “If anything, we need to continue the conversation about cutting taxes, and we can start by getting rid of the unnecessary triggers that were put in place in 2018,” said Gov. Reynolds. “Let’s make Iowa more competitive and guarantee our taxpayers that they can keep more of their hard-earned money.”
At present, Iowa’s top marginal individual income tax rate – the part of the income tax that is most commonly used to make decisions about investment – is in the top 10 highest in the country. To ensure that Iowa definitely becomes more competitive, Gov. Reynolds, at minimum, would like to remove the triggers to make sure the promised cuts take effect.
Even better news for Iowans is that newly elected Senate President Jake Chapman has always viewed tax relief as a top priority. In a recent interview with The Gazette, President Chapman explained:
“Now more than ever is when we need to be implementing tax cuts. We need to stir our economy as never before, and one of the ways we do that is through tax cuts. I’m talking about individual tax cuts, I’m talking about people who are paying capital gains, who are wanting to bring their business back or start a business. This is the time to really focus on how we can begin to implement tax cuts that will lead to the total elimination of income tax. My hope is that we do focus on how we can reduce taxes and eventually eliminate the income tax.”
Reducing and phasing out the state income tax would be a huge win for all Iowans. Putting the income tax on the path to zero would allow Iowa to compete with more states for businesses looking to expand, investors looking for growing economies, and families looking for better opportunities – all of which would bring new jobs and higher wages to the state.