Gov. Kim Reynolds addressed her constituents in the 2022 Condition of the State on Jan. 11 where she touched on a variety of issues including the budget and on a bill that will transition Iowa’s income tax rate to 4% in what she called “flat and fair.”
Reynolds explained in her speech earlier this month that the proposal eliminates what was a “complex system of multiple tax brackets.” She said cuts will occur over the next four years. In the first year taxpayers will save nearly $500 million, she said. By 2026 Reynolds said the average family in Iowa will be paying $1,300 less in taxes on top of the $1,000 was cut from 2018.
“Last year, the state ended with a $1.2 billion surplus, on top of nearly $1 billion cash reserves,” she said in the address. “That’s good. We kept spending down. But it also means that, despite the historic 2018 tax cuts, we’re still taking too much from Iowans’ paychecks. That needs to stop. Now. Tonight, I’ll introduce a comprehensive bill that significantly cuts taxes for all Iowans.”
Reynolds said money can then be reinvested into the economy. She said it does mean that the state will have less to spend per year, but the money will be spent on “businesses instead of on bureaucracies.”
The proposed tax plan would increase the tax bracket on those making less money but would lower it for people currently in higher tax brackets, according to the Iowa Department of Revenue. For example, someone making more than $78,435 per year in taxable income has a tax rate of 8.53% currently, which would be cut by more than half.
Reynolds bill includes having four tax brackets ranging from 4.4% to 6.0% starting in the tax year 2023. In the subsequent years, the top rate will be eliminated annually until a 4% flat tax rate is achieved in 2026. It is projected to save taxpayers $1.583 billion by 2026.
In 2018, Iowa had the sixth-highest income tax rate in the country, according to a report by Reynolds. If the bill passes it will reportedly make Iowa’s tax rate the fifth-lowest among all states that charge an income tax.
