Photo: Office of Governor Kim Reynolds
(Des Moines, IA) -- Governor Kim Reynolds signs the flat income tax bill into law.
“When I took office, Iowa had the sixth highest individual income tax rate in the nation at 8.98%. I believed Iowans deserved better,” says Reynolds. “Since then, I’ve worked with the Legislature across multiple sessions to make transformative changes to our tax code, let Iowans keep more of their hard-earned money, and make our state more competitive."
The individual income tax will gradually lower to 3.9% for all Iowans, fully going into effect in 2026. Corporations will also see a tax cut. Their rates will lower to 5.5%.
Democrats say the tax cut benefits the richest Iowans, instead of the middle and lower classes. Johnson County Representative Dave Jacoby goes further, saying the bill isn't flat, or fair.
"This is not flat tax. A true flat tax would eliminate all tax exemptions, all tax credits," says Jacoby. "What [Republicans] are proposing is basically a different tax table that incredibly favors the wealthy."
Dubuque County Senator Pam Jochum agrees with Jacoby.
"It's a great day for the millionaires, but it isn't for the childcare workers. It isn't for the school teacher. It isn't for the truck driver," says Jochum.
A press release from the Office of Governor Kim Reynolds states the flat income tax will keep Iowans at home, and bring new workers to the state.
"With this bill, Iowa is now the fourth lowest for individual income tax rate in the nation. There’s never been a better time in Iowa for bold, sustainable tax reform," says Reynolds. "This bill rewards work, takes care of our farmers, and supports our retirees, all while protecting key state priorities. Iowans will reinvest these dollars in our economy, communities will prosper, and families will rest a little easier. Once again, we’re putting our faith in Iowans, and they won’t let us down."
Reynolds signing the bill into law officially meets one of the goals for the Republican Party for the 2022 Iowa Legislative session.
"We've been very clear since the beginning of session. We want a bill that doesn't pick winners and losers, and ours doesn't do that," says Iowa Speaker of the House Pat Grassley.
He says Iowa has $1 billion in taxpayer relief funds, and the flat tax is a way to get money back in the hands of the taxpayers.
Polk County House Minority Leader Jennifer Konfrst says the bill only puts money back in the hands of the rich.
"This is a Republican tax proposal helps the wealthy, helps them first, helps them most, and helps them best," says Konfrst. "That is not something we should be doing in Iowa."
The lowest income tax bracket will see a .5% cut in the next four years. The highest income tax bracket will see a 2.1% cut in the same time period.
Starting in 2023, the bill also eliminates taxes on retirement income, such as 401(k)s, pensions, and IRA's. Retired farmers will also be able to apply for tax exemptions in 2023.
Republicans say this bill is only the beginning. Pottawattamie County Senator Dan Dawson says their next goal is to eliminate the state's income tax altogether.
"All the states that are on the pathway to zero, one of the first things they do is get to a flat tax," says Dawson.
He tells Jeff Angelo on Need To Know that the Iowa Legislature will be looking at making changes to the state sales tax in the next legislative session.