Feb 25, 2022 - News

Iowa Republicans pass major income tax reform

Sen. Jack Whitver-Ankeny
Sen. Jack Whitver (R-Ankeny) applauds while senators are sworn in on the first day of the 2021 legislative session. Photo: Kelsey Kremer/The Register via Imagn Content Services

The Iowa House and Senate on Thursday evening passed a major tax reform bill that will cut Iowans' income tax rates to a flat 3.9% by 2026.

State of play: The legislation now awaits Gov. Kim Reynolds' signature, days before she’s set to deliver the GOP's response to President Biden's State of the Union address.

Why it matters: Iowa Republicans tout the move as a major victory that will benefit the balance sheets of all Iowans and attract newcomers to the state.

  • Yes, but: Democrats, who largely voted against the bill, warned the ultimate benefactors are the state's wealthiest. They say high-income Iowans have the most to gain from a flat tax rate, while low-income Iowans will see marginal savings.

What's in the bill:

  • Gradual reduction to a flat 3.9% income tax by 2026
  • Eliminate the state's progressive tax system
  • Remove state income tax on retirement income, like 401Ks and IRAs
  • Corporate tax rates will gradually reduce

What they're saying: Democrat Sen. Zach Wahls said the median household income in Iowa is $68,000 and those individuals would only see their state taxes reduced by $563, Iowa Capital Dispatch reports.

  • But a millionaire would save an average of $67,00 he noted.

The other side: Republican Sen. Dan Dawson argued the current progressive system "penalizes people who work harder" and that every Iowan benefits from the cuts, ICD reports.

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