Tax Cuts Mean More Money in Your Pocket
At an ITR event last week in Glenwood, a local business owner asked when Iowa’s corporate income tax rate would decrease. He shared how taxes and increases in other costs drive up the price he charges to his customers.
The day after we talked to him, Governor Kim Reynolds announced Iowa’s corporate income tax rate would decrease from 8.4% to 7.1% in tax year 2024.
This cut is three years ahead of schedule.
The 2022 tax reform included a path to gradually lower the corporate rate to 5.5 percent. When corporate revenue for a fiscal year is over $700 million, the excess revenue is used to decrease the rate permanently.
A rate of 7.1 percent was not projected until 2027, but stronger-than-expected corporate tax revenue of $838 million triggered this cut.
In President Biden’s economy, every taxpayer’s budget is stretched thin. When business owners don’t have to pass on an increased cost, such as taxes, individuals can keep more money in their bank accounts.
Iowa’s tax cuts are built on fiscal strength.
The 2022 tax reform included a flat 3.9 percent individual income tax rate in 2026 and eliminating state income taxes on retirement income in 2023.
How will these tax cuts affect state revenue? Well, so far, revenue is still exceeding expectations.
Today, Governor Reynolds revealed the state ended Fiscal Year 2023 with a $1.83 billion General Fund balance, $902 million in reserve funds, and $2.74 billion in the Taxpayer Relief Fund.
“Some see a surplus as government not spending enough, but I view it as an over collection from the hard-working men and women of Iowa,” said Reynolds. “We’ve seen what the powerful combination of growth-oriented policies and fiscal restraint can create, and now it’s time for Iowans to directly receive the benefits.”
Iowa’s fiscal strength and a limited government foundation allow the state government to cut taxes.
These rate reductions are done responsibly from the excess that’s being paid. It’s all about right-sizing. The stronger Iowa corporations are, the lower the tax rate will be.
Looking ahead, we don’t know that the target gets met every time. But that’s the reason that triggers and targets are put in there. The state’s fiscal house is sound, and for the foreseeable future, we will see the corporate rate continue to decrease.
What about the individual income tax rate?
Even better, when legislators come back to the Capitol in January, there is no reason Iowa will not be able to accelerate the individual income tax rate reductions.
Over the last few months, Governor Reynolds and her colleagues have repeatedly said that Iowa is far from finished with tax reform, and her goal is to eliminate the income tax altogether.
This afternoon, Senate Ways and Means Chair Dan Dawson posted on X, “Accelerate. Lower. Eliminate.”
In her release this morning, the governor said, “I look forward to cutting taxes again next legislative session and returning this surplus back to where it belongs – the people of Iowa.”
While this policy might seem like a dream in some states, Iowa is in the perfect situation to enact the first-of-its-kind elimination of the income tax.