Iowa Senate Republicans release flat tax proposal with road to elimination

The plan would set Iowa’s income tax at a flat 3.6 percent over the next five years and lower the corporate tax rate.


Grace Smith

Senate Majority Leader Jack Whitver, R-Ankeny, speaks during the opening of the 2022 Legislative Session at the Iowa State Capitol in Des Moines, Iowa, on Monday, Jan. 10, 2022. Whitver addressed the issues of high taxes. “High taxes close schools and oppressive government chases residents to other states,” Whitver said. “People are voting with their feet and with their wallets. They’re moving to low tax pro freedom states… We must improve our competitive advantage to attract new residents and create new career opportunities.”

Caleb McCullough, Executive Editor

Iowa Senate Republicans are proposing cutting Iowa’s tax rates to a flat 3.6 percent over the next five years, scaling back the corporate tax rate, and eliminating the retirement income tax among other provisions in a plan announced Wednesday. 

“Prior to 2018, Iowa spent years building a complicated tax code full of credits and exemptions because of individual and corporate tax rates among the highest in the country,” Senate Majority Leader Jack Whitver, R-Ankeny, said in a press release. “Today, the Iowa Senate introduced a bill to dramatically cut taxes in Iowa. This bill is complimentary to the governor’s bill and includes many of the same concepts and goals.”

Beyond flattening the income tax and lowering rates for most taxpayers, the bill would do the following: 

  • Lower corporate tax rates
  • Eliminate taxes on retirement income
  • Expand exemption for military pay to members of the National Guard
  • Create some tax exemptions for farmers
  • Rename the Taxpayer Relief Fund to the Tax Elimination Fund, with the eventual goal of eliminating Iowa’s personal income tax.

Whitver said the plan would save the average Iowan $1,590 a year.

Right now, Iowa has nine income tax brackets that vary from 0.33 percent on the first $1,743 to 8.53 percent on taxable income above $78,435. Iowa’s corporate tax rate varies from 5.5 percent to 9.8 percent depending on income. 

In the 2023 tax year, the bill would set four tax brackets, ranging from 4.4 percent to 6 percent. The first $6,000 would be taxed at 4.4 percent, and up to $30,000 would be taxed at 4.82 percent. Low-income Iowans whose effective tax rate is below those rates would see a tax increase under this plan. 

By 2024, the tax brackets would be reduced to three brackets between 4.4 percent and 5.7 percent, and in 2025 there would be only two brackets at 4.4 percent and 4.8 percent. 2026 would see a flat income tax rate of 3.85 percent, before the rate settled at the target of 3.6 percent and 2027. 

But Republicans don’t want to stop there — in 2029, Iowa’s tax rate would begin automatically adjusting based on the balance in the newly-named Tax Elimination Fund and that year’s net revenue. The higher the surplus each year, the lower the tax would be. 

The end goal of these adjustments would be to cut the tax rate to zero and join the seven other states that don’t levy a personal income tax. 

Senate Minority Leader Zach Wahls, D-Coralville, denounced the plan in a prepared statement, saying the plan is a tax cut for millionaires and big corporations. 

“The Republican plan would result in higher taxes for hardworking Iowans and the defunding of public education, public safety, and health care services,” Wahls wrote. “Senate Democrats are focused on putting more money into the pockets of hardworking Iowans. That includes targeted tax cuts for middle class families, expanding access to affordable child care and paid family leave, fully funding our schools, and making job training and apprenticeships available and affordable for all Iowans.” 

Corporate Tax 

The Republican plan would lower the highest corporate income tax rate to 9.4 from 9.8 in 2024. It would go from three brackets to two in 2025 — 5.5 percent for companies with up to $100,000 in taxable income and 9 percent for companies with a taxable income over $100,000. The rates would fall to 5.3 percent and 7.8 percent for the same income ranges by 2028.

The bill will be filed this week in the Senate Ways and Means Committee, the press release said.

 “Our proposal that we are releasing today not only delivers on that goal, it modernizes our tax code for the 21st century economy, dramatically cuts rates for Iowans and their families, and takes the next steps necessary on the path to completely eliminating the income tax in Iowa,” Senate Ways and Means Committee Chair Dan Dawson, R-Council Bluffs, said.

The full text of the bill can be found here

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