Gov. Kim Reynolds and Republican legislators are delivering $1 billion in tax relief to Iowans over the next eight years.

Senate File 619, managed by Senator Dan Dawson and Representative Dustin D. Hite, will make a number of pro-growth reforms to Iowa’s tax code that will allow individual taxpayers, families, and small businesses across the Hawkeye State to keep more of their heard-earned money.

One of the biggest victories in SF 619 is that it will fully phase out the state inheritance tax by 2025. Right now, Iowa has the unwelcome distinction of being one of just six states that still impose an inheritance or death tax. Because of this, non-lineal descendants – including siblings, nieces, nephews, domestic partners, and business partners – have faced a tax of up to 15 percent when they inherit assets that are valued at more than $25,000. 

“In Iowa, this often means a niece or nephew who inherits a share of the family farm from an uncle who never married will be faced with finding hundreds of thousands of dollars to hold onto land that’s been in their family for generations,” explained Iowans for Tax Relief. “Iowa’s inheritance tax hits entrepreneurs, too. If unrelated partners build a business together and one of them dies, the deceased partner’s half of the business would be subject to the inheritance tax if they choose to leave their portion to their business partner.”

Thanks to SF 619, Iowa’s death tax will not be around much longer. “Death taxes are always a second or third tax on the same income and savings,” explained Grover Norquist, president of Americans for Tax Reform. “The argument for death taxes is the politics of envy. The good news is that 70% of Americans have year after year consistently supported abolishing the death tax. Killing the death tax is good economics, good politics and helps end class warfare nonsense.” 

Another benefit of SF 619 is that it guarantees much-needed income tax relief will be delivered in 2023. Back in 2018, Iowa passed a tax reform bill that, once fully implemented, will deliver the largest tax cut in Iowa history. The catch with the 2018 tax reform package is that it made a lot of those important reforms contingent upon stringent triggers being met.

“The 2018 tax reform law designed two stringent revenue triggers for income tax rates to be reduced in 2023,” explained John Hendrickson, Policy Director for TEF Iowa. “The first, state revenues were to surpass $8.3 billion, and the second required revenue growth of at least four percent during that fiscal year. Eliminating both triggers removes an unnecessary impediment to rate reduction.”

SF 619 removes the unnecessary triggers from the 2018 tax reform law, guaranteeing tax relief will be delivered on time. Among other changes, in 2023, Iowa’s top income tax rate of 8.53 percent – the part of the income tax that is most often used to make decisions about investment – will be reduced to 6.5 percent. This will be a huge win for all Iowans.

Under the status quo, Iowa’s income tax is not competitive. Nine states – including Iowa’s neighbor South Dakota – do not tax wage income and thirty-three more states – including neighbors Illinois, Kansas, Missouri, Nebraska, and Wisconsin – have top marginal individual income tax rates that are lower than Iowa’s. The lower rate will make Iowa more attractive to investment, and will allow individual taxpayers, families, and small businesses, which overwhelming pay income taxes on the personal side of the code, to invest more in jobs and wages. 

While this is a great first step, Iowa should not get complacent. As people and jobs continue to move out of high tax states and into states that do not impose income taxes, more states are looking to put their income taxes on the path to zero. Iowa has a long way to go if it really wants to attract investment, jobs, and opportunities.