Iowa will move to a flat tax rate of 3.9% as part of a compromise between Legislative Republicans and Gov. Kim Reynolds that paves the way for the passage of a massive tax cut.
House and Senate lawmakers are expected to vote on the compromise on Thursday, which would send the bill to Reynolds’ office for his signature. The deal means the governor will have a new achievement to brag about in a nationally televised address on Tuesday, when she delivers the Republican Party’s rebuttal to President Joe Biden’s State of the Union address.
The bill would reduce Iowa income tax to a flat rate of 3.9% for individuals by 2026. It would also exempt retirement income like 401(k)s, pensions and IRAs from state taxes and revise some of Iowa’s corporate tax credits.
Along the way, the bill would eliminate Iowa’s progressive income tax system, where wealthier Iowans pay higher rates than lower-income Iowans.
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It represents a compromise between competing Republican plans. Reynolds and House Republicans had originally proposed a flat tax rate of 4% by 2026, while Senate Republicans had called for a rate of 3.6% by 2027, with a mechanism to eventually eliminate income tax entirely.
Iowa’s corporate tax rate will also be lowered under the proposal, while certain corporate tax credits will be overhauled.
The compromise does not include a proposal from the original Senate Republican plan to eliminate one-cent local option sales taxes in individual communities and establish a one-cent nationwide sales tax. ‘State, part of which could then be used to pay for water quality and exterior. leisure projects.
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Ten states had some form of flat income tax as of Jan. 1, 2021, according to the Federation of Tax Administrators.
Republicans’ quick agreement on a package of tax cuts this session stands in stark contrast to last year, when debates over tax policy negotiations over competing tax plans extended the legislature in session until May. – weeks after its scheduled end date.
Democrats had unsuccessfully proposed a separate plan that would double the state’s earned income tax credit and increase the child and dependent tax credit for those earning less than $90,000 a year. . Democrats have also pushed to increase Iowa’s per-student spending on K12 education next year instead of cutting corporate taxes.
Stephen Gruber-Miller covers the Iowa Statehouse and politics for the registry. He can be reached by email at firstname.lastname@example.org or by phone at 515-284-8169. Follow him on Twitter at @sgrubermiller.
Ian Richardson covers the Iowa Statehouse for the Des Moines Register. Contact him at email@example.com, 515-284-8254, or on Twitter at @DMRIanR.