Governor proposes path to 5.5% income tax rate
In her Condition of the State address, Governor Kim Reynolds announced her plan to Build Tomorrow's Economy Today by reducing income and property taxes, while increasing Iowa's sales tax.
The Governor's proposal would:
- Increase the state sales tax by 1-cent.
- 3/8 of the proposed 1-cent sales tax increase would fund the Natural Resources and Outdoor Recreation Trust Fund.
- Cut individual income taxes by 10%, on average, in 2021.
- Further reduce the highest income tax rate 5.5 percent in 2023.
- Reduce the number of tax brackets from nine to eight in 2021, and further reduce to four brackets in 2023.
- Reduce property taxes by lowering the per capita county mental health levy from $47.28 to $12.50. Mental health would be primarily funded through the state's General Fund.
- Repeal the water excise tax.
- Exempt diapers and feminine hygiene products from sales tax.
According to the Tax Foundation, if these reforms were in effect today, Iowa's current State Business Tax Climate Index ranking of 42nd in the nation would improve to 37th.
To be enacted, the Governor's plan would have to be passed by both the Iowa House and Senate. Visit the Governor's website to see more details of her Vision for Iowa.
According to Iowa Capital Dispatch and Radio Iowa, Republican leaders liked the Governor's overall message but were cautious about the details.
Senate Majority Leader Jack Whitver said, “It’s definitely a bold plan that has a lot of different moving parts. To put together the moving parts is going to be difficult, but that’s why we’re here is to solve difficult issues.”
Senate President Charles Schneider said, “We’ll have to see what the numbers are when they come back. I think it’s a good starting point for us to look at how we can reduce our income tax rates and make our state more competitive.”
Tax rates matter, and Iowa has some of the highest income tax rates in the country.
Currently scheduled rate reductions can only be implemented if two economic triggers occur. It's imperative legislators improve the long timeline and high threshold for enacting the remainder of 2018's reforms. The Governor's proposal is one way to achieve this goal. ITR looks forward to being part of this discussion, and we welcome your input.
What Do You Say?
What do you think about the Governor's comprehensive tax plan? Use the link below to email the Governor and your legislators.