Iowa’s 2018 income tax reform started a multi-year process of rate reductions, increased federal conformity, and larger deductions for small business owners, which are all good things.
The largest rate cut, however, is the last change that is scheduled to occur, not before 2023, and only when two conditions are met:
- State revenue surpasses $8.3 billion (FY 2018 revenue was $7.384 billion)
- State revenue increases at least four percent that fiscal year
If these conditions are met, Iowa's top individual income tax rate of 8.53% will be reduced to 6.5%.
So what’s the problem with triggers?
Triggers are a reasonable protection, but continuing to subject Iowans to high tax rates while praising tax cuts that may never happen is disingenuous at best. Until both of these goals are met, rates will remain high.
Iowa's Recent History
Over the past 10 years (FY 2009-18), Iowa's annual revenue:
- Has averaged two percent growth per year
- Achieved four percent growth (or more) in five of the last 10 years
- Had negative growth in three of the 10 years
The Solution
It's imperative legislators evaluate the triggers to determine if taking more taxpayer dollars and waiting until the state gets a four percent raise before giving Iowans a break make sense.
Governor Kim Reynolds has proposed a comprehensive tax plan to speed up cutting income tax rates and ultimately reducing them to 5.5%, reducing property taxes, and increasing the sales tax.
The Tax Foundation has evaluated her plan and determined that, if enacted, Iowa's tax ranking would improve from 42nd to 37th.
House and Senate members have not yet released their respective reform plans, but encouraging comments have been made. For instance, Senate Majority Leader Jack Whitver has said about Iowa’s income taxes, "More needs to be done. We want to continue to reduce those rates to bring our state from the back of the pack to one of the states with the lowest rates."
What do you think is the best path forward for income tax cuts?
- Should Iowa remove either of the growth triggers?
- What growth rate do you think the state needs?
- Do we need to revise the 2018 reform plan?
- How do high income taxes impact your daily life?
Take this short survey and let us know!
