Republicans Deliver Historic Income Tax Cut for All Iowans

Under the leadership of Gov. Kim Reynolds (R), Iowa Republicans have delivered the largest tax cut in Iowa’s history. Once fully implemented, this pro-growth tax package will streamline the Hawkeye State’s income tax to a flat rate of 3.9%, leaving millions of hard-earned dollars in the pockets of individual taxpayers, families, and small businesses.

“Iowa Republicans delivered a historic and game changing tax package that reduces the burden on all income taxpayers and moves Iowa to a flat tax on the road to phasing out the entire state income tax,” said Grover Norquist, president of Americans for Tax Reform. “Governor Kim Reynolds, Senate Majority Leader Jack Whitver, Senate Ways & Means Chairman Dan Dawson, House Speaker Pat Grassley, and many others worked together to create a brighter future for Iowa.”

People and jobs continue to pour out of high-tax states and into states that impose low- and no-income taxes. There are currently eight states that do not impose individual income taxes of any kind: Texas, Florida, Tennessee, Alaska, Nevada, South Dakota, Washington, and Wyoming. New Hampshire, which does not tax wage income, is slated to become the ninth no income tax state after it completes a 5-year phase out of its tax on interest and dividends income.

In order to compete with the “no income tax” states for businesses looking to expand and families looking for better opportunities, a growing movement of states are working to put their income taxes on the path to zero. Last year, fourteen states delivered legislation that will reduce their income tax burdens. That momentum has carried into this year. Nearly ten states already have or are currently working to provide income tax relief.

“While President Biden attempts to impose enormous federal tax increases, Governor Reynolds and Iowa Republicans have delivered legislation that will put Iowa at the forefront of this movement to reduce state income taxes.” said Norquist.

Iowa’s leaders have made significant improvements to the state tax code over the last few years, but understood the Hawkeye State still had a long way to go in order to be competitive. Even after the old tax reform package would have been fully implemented in 2023, Iowa still would have been home to one of the highest income tax rates in the country. Its top marginal income tax rate – the part of the income tax that is most often used to make decisions about investment – would have been reduced from 8.53% to 6.5%. Still higher than Massachusetts and Illinois.

Rather than sitting back and allowing Iowa to fall behind, Republicans worked tirelessly this year to make Iowa competitive. Under the new Republican tax package, Iowa’s income tax will be streamlined down to a flat rate of 3.9% by 2026, lower than the bottom income tax rate that, under current law, is scheduled to take effect next year. The package also exempts retirement income from taxation and reduces the corporate rate from 9.8% to 5.5%.

Of course, the tax and spenders will (once again) call this reform a “tax cut for the rich.” But the Republican tax package provides a tax cut and a rate cut for every single income taxpayer. Thanks to leadership of Gov. Kim Reynolds, every single Iowan is a winner under this plan.

Individual taxpayers and families will be able to keep more of their hard-earned money. Small businesses will be able to invest more in new jobs and higher wages. And Iowa will be a more attractive place to invest, do businesses, and raise a family. Lower taxes will bring new jobs and opportunities to current residents of the Hawkeye State.

The bill is now headed to Gov. Kim Reynolds, who had made it clear she is eager to sign it into law.