Iowa Senate Republican’s Tax Reform Plan
Iowa Senate Republican’s Tax Reform Plan
Wednesday, the Iowa Senate Republicans released their plan to rewrite Iowa tax code called the “Iowa Working Families Tax Relief Act.”
ITR President Chris Ingstad said, “In a little over one week, both Governor Reynolds and the Iowa Senate have released tax reform plans. We are encouraged the broad conversation about tax reform has begun and are optimistic real tax relief can be delivered to Iowans. This is long overdue. Iowa has some of the highest personal and corporate income tax rates in the country.”
The Senate plan lowers both the individual and corporate income tax rates and will most likely provide tax relief to most, if not all, Iowans. It simplifies our code by eliminating, reducing, or capping most business credits and by more closely mirroring recent federal tax law changes. Ultimately, this plan will address and reduce state government spending. Major items in the Senate’s plan are:
Individual income tax:
- Reduces the number of tax brackets from nine brackets to five.
- Reduces the top rate of 8.98% to 6.60% (and eventually to 6.30%).
- Eliminates federal deductibility.
- Changes starting point of state income tax calculation to “federal taxable income”. This means Iowa technically eliminates standard and itemized deductions, but effectively keeps them both, as well effectively keeping new federal qualified business income deduction.
- Doubles retirement income exemption from $10,000 to $20,000.
- Alternative Minimum Tax (AMT) is eliminated.
- Couples Iowa tax code with more federal tax provisions.
- Beginning in 2023, tax rates would be indexed to inflation and be reduced each year.
Corporate income tax:
- Maintains four tax brackets.
- Top rate drops from 12.0% to 7.0%.
- Eliminates federal deductibility.
- Many corporate credits are reduced, eliminated, or otherwise reformed.
- Credit unions would now be taxed the same as banks.
Sales tax:
- Sales tax would be collected on digital downloads, services, and subscriptions that are now not taxed.
- Requires out of state online retailers to collect and remit Iowa sales tax. This is dependent upon a U.S. Supreme Court ruling or Congressional legislation. Iowa’s current tax code requires Iowans pay a use tax on these purchases, but that provision is effectively ignored.
Iowa currently has some of the highest income tax rates in the country. Since our founding 40 years ago we have worked to allow Iowans to keep more of their own money in their own pockets; the Senate and Governor’s tax reform proposals do that to varying degrees. ITR expects the Iowa House to soon craft their own tax reform legislation as well. Once they have done so there will be three proposals with the goal of ensuring Iowa’s tax system is not such an outlier in comparison to our neighboring states and the rest of the country.
ITR will continue to engage with elected officials and keep you, our members, informed of developments.
Lowering tax rates and reducing spending is a formula that will lead to economic growth in Iowa. As legislation is considered at the Capitol in subcommittees, full committees, or on the floor of either Chamber, Iowans for Tax Relief will register for, against, or undecided on bills based on how the bill impacts Iowa taxpayers. Email itr@taxrelief.org to share your opinion. We welcome your input.