Top Republicans in the Iowa House and Senate want to speed up existing income tax cuts during the upcoming legislative session, and they may pursue more tax cuts after that.
Iowa’s personal income tax is already on track to drop to a flat 3.9% in 2026.
Senate Majority Leader Jack Whitver, R-Grimes, said agreeing to speed up existing cuts would set the stage for a longer conversation about how much more to cut taxes.
The chair of the Senate’s taxation committee said he will propose a bill to eliminate the personal income tax, which is Senate Republicans’ ultimate goal.
“Whether it’s done this year or not, I don’t know yet,” Whitver said. “But that will always be on top of mind as we put any cuts in place is, what comes next and how do we get to that point.”
House Speaker Pat Grassley, R-New Hartford, said for House Republicans, there are two driving factors that will determine if they push the income tax below 3.9%.
“We obviously want to put ourselves in a position to give more money back to Iowans,” he said. “But I don’t think we should be lowering taxes if we can’t maintain the commitments that we make, and I also don’t think we should be raising taxes on Iowans to cut taxes.”
Income taxes bring in nearly half of the state’s revenue, and Democrats say the state would have to boost the sales tax to offset the loss of the income tax if it was eliminated.
In addition to tax cut proposals from House and Senate Republicans, Gov. Kim Reynolds said she will propose further income tax cuts in 2024. She has not said if this will be the year she introduces a bill to eliminate the personal income tax.
“I think there’s going to be a vociferous debate about taxes,” Rep. David Young, R-Van Meter, said at a recent legislative panel discussion. “In terms of—I guess it’s kind of like tax limbo—how low can you go, and at what rate and speed?”
Republican lawmakers have argued that even as state revenue starts to decline as a result of tax cuts, Iowa is still “overcollecting” tax dollars from Iowans. They have continued to budget far below their spending limitation, leaving billion-dollar budget surpluses that have been put into a Taxpayer Relief Fund that is projected to soon reach $3.6 billion.
But Senate Minority Leader Pam Jochum, D-Dubuque, said the GOP is “hoarding money” and should instead prioritize funding quality of life initiatives.
She said if the state ends up raising the sales tax to make up for income tax revenue, it would hurt the working poor. She said any new tax policies should do the opposite.
“It needs to be an opportunity to make sure that Iowa’s working families have a chance to get ahead,” Jochum said. “And that if there’s any tax break it needs to be focused on them, not on the wealthy and big corporations who have, quite frankly, benefitted from these series of tax cuts we’ve seen in recent years.”
House Minority Leader Jennifer Konfrst, D-Windsor Heights, said House Democrats will propose more housing and child care assistance as a way to lower costs for Iowans as opposed to tax cuts.
“We need to really think about ways to look at the impact of these tax cuts both on the budget and also on everyday Iowans’ lives,” she said. “If Iowans aren’t seeing the benefit, why are we taking the hit on the revenue side when we could really find more concrete ways to lower costs?”
What has already happened with tax cuts?
The Iowa Legislature passed sweeping tax cuts in 2022 that started to take effect this year. They are projected to cost the state more than $1.8 billion in 2028.
As of January 2023, state taxes on retirement income were eliminated, and the top personal income tax rate dropped from 8.53% to 6%.
In January 2024, the top personal income tax rate will fall to 5.7%.
Without further changes, the top rate would drop to 4.82% in 2025, and in 2026, there would be a single income tax rate of 3.9%.
The 2022 tax cuts also included a mechanism to ratchet down the top corporate income tax rate over time. The top corporate income tax rate went from 9.8% to 8.4% this year. And in 2024, it will fall to 7.1%.
Republican leaders said they do not have plans to further cut corporate taxes during the upcoming legislative session.
They also said it’s unlikely they would take more action on property tax relief in 2024. The Iowa Legislature passed a property tax relief measure last session, and leaders said they want to see how that works as it begins to impact taxpayers and local governments.
