Taxpayers Will See Over $1 Billion in Tax Relief

Governor Kim Reynolds signs the latest income tax reform bill into law on May 1, 2024.

Iowa is quickly becoming one of the most taxpayer-friendly states in the country.

On the heels of delivering an historic income tax cut just two years ago, Republicans used the 2024 legislative session to give more than $1 billion in additional tax cuts while also advancing two resolutions that will protect taxpayers from future tax increases. These accomplishments are a huge win for all Iowans.

It was not that long ago that Iowa was home to some of the nation’s highest income tax rates. Prior to those rates being lowered, Iowa’s top individual income tax rate – the part of the income tax that is used to make decisions about investment – was 8.98 percent. Just California, New York, New Jersey, Oregon, Minnesota, and Hawaii had higher top rates. Adding insult to injury, Iowa’s corporate tax rate was a whopping 12 percent, the highest in the country.

Fortunately, Iowa’s leaders have long prioritized tax cuts and have spent their time in office working to make their dream of low tax burdens a reality. Thanks to their hard work and conservative budgets, in 2022, Iowa was able to lead the nation by passing an extensive tax reform measure that put it on the path to having a flat income tax of 3.9 percent. So far, this pro-growth reform has already reduced the top income tax rate to 5.7 percent, a 42.37 percent decrease. In addition, the 2022 tax cut package also put Iowa’s corporate tax on the path to a much more competitive 5.5 percent.

Growth driven by those lower tax rates and continued spending restraint has resulted in Iowa’s budget remaining in surplus (meaning too much money is collected from taxpayers). In Fiscal Year 2023, Iowa ran a $1.8 billion surplus, and the Taxpayer Relief Fund had a $3.7 billion balance. In addition, Iowa’s reserve accounts are filled to the maximum. Even with phased-in tax rate reductions, Iowa’s revenue remains strong, and surpluses are projected into the future.

So, just two years after delivering the largest tax cut in state history, Governor Reynolds and the legislature—on a bipartisan basis— used the 2024 legislative session to deliver additional income tax relief. Specifically, they approved legislation that accelerates the 2022 tax package and builds upon it, giving Iowa a flat income tax rate of 3.8 percent in 2025.

Making this great news even better, they are also working to make it harder for future politicians to increase taxes. The House and Senate advanced two taxpayer safeguards that, when ratified by voters, will be significant constitutional protections for taxpayers.

The first proposed constitutional amendment would require a two-thirds majority vote of the legislature to approve an increase in the income tax. Seventeen states, including some progressive states such as California, have some kind of supermajority requirement for tax increases.

The second proposed constitutional amendment would protect the flat tax or guarantee that Iowa would only have one income tax rate. A single, low, flat-income tax rate is not only fair for all taxpayers, but it also eliminates the politician’s ability to divide taxpayers into groups and mug them one at a time. The legislature will need to pass both resolutions during the next legislative session in order for them to appear on the ballot in November of 2026.

Both of these amendments would bring certainty to individual taxpayers, families, and businesses across Iowa, reassuring everyone that Iowa will remain a low-tax state and, therefore, a great place to live, raise a family, and create jobs.

The evidence is clear that states that either do not have an income tax or low-income tax rates are doing better economically. Iowa only has to look to Minnesota to see the consequence of a tax and spend agenda. Minnesota is losing population and is potentially headed for a fiscal crisis as a result of reckless spending.

Buttressing this point, Iowans have made clear they support tax relief. Close to 68 percent of Iowans support a two-thirds majority requirement to increase taxes, and The Des Moines Register poll found that 62 percent favor gradually eliminating the income tax. The last several elections demonstrate that Iowans support the tax relief efforts of Governor Kim Reynolds and the legislature.

Thanks to Iowa’s leaders, it is a national leader in state fiscal policy. Pro-growth tax reforms combined with conservative budgeting are strengthening Iowa’s economy and creating a strong fiscal foundation. Iowa’s goal should be to continue to work toward a lower flat tax and even consider ways to eliminate the income tax while granting constitutional protections for taxpayers.

This article was co-authored by Chris Hagenow, President of Iowans for Tax Relief, and Grover Norquist, President of Americans for Tax Reform, and was originally published in the Des Moines Register