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Iowa governor signs law to phase in a 3.9% flat income tax

Kim Reynolds signs a bill while lawmakers watch.
Madeleine King
Gov. Kim Reynolds signed a major tax cut package into law Tuesday surrounded by Republican lawmakers in Des Moines.

Iowa Gov. Kim Reynolds signed a major tax cut package into law Tuesday, completing her top priority for the legislative sessionjust hours before she was scheduled to deliver the Republican response to the State of the Union address.

“Today is a great day for the state of Iowa as we dramatically reform Iowa’s tax system for the better and make our state one of the most competitive in the nation,” Reynolds said.

The new law will phase in a flat 3.9 percent personal income tax by 2026, while preserving existing tax credits.

It will eliminate state taxes on retirement income starting next year, and enact new tax breaks for retired farmers and people retiring from employee-owned companies. The corporate tax rate will also be reduced over time, along with reductions in some corporate tax credits.

Reynolds signed the law at a local manufacturing facility surrounded by a crowd of Republican lawmakers.

Senate Majority Leader Jack Whitver, R-Ankeny, said it’s an historic day. He said Republicans are delivering on their promise to return tax dollars to Iowans when there is a budget surplus.

“In this post-pandemic economy, competition is fierce for jobs and workers,” Whitver said. “And this bill will ensure that Iowa will compete for those jobs and those workers.”

Many states are cutting taxes this year as federal pandemic relief programs and unexpected ratesof economic growth are boosting state revenues and leaving large budget surpluses.

Senate Minority Leader Zach Wahls, D-Coralville, criticized the tax cuts for giving thebiggest benefits to the wealthiest Iowans.

“We certainly feel like Governor Reynolds has not been governing for all Iowans,” Wahls said. “She’s been governing for those at the very, very top.”

Democrats proposed expanding the Earned Income Tax Creditand the Child and Dependent Care Tax Credit, but the GOP majority rejected those ideas.

House Minority Leader Jennifer Konfrst, D-Windsor Heights, said Reynolds should thank President Joe Biden for sending more pandemic relief funds to the state that helped make the tax cuts possible. She also criticized the timing of the bill becoming law as Republicans reached a deal and sent the bill to Reynolds' desk last Thursday.

“What we saw happen last week was rushing through a $1.7 billion tax bill so that [Reynolds] could have something to talk about tonight on the national stage,” Konfrst said.

Asked about the timing of the tax cut deal, Republican Statehouse leaders have pointed to the fact that they started working on tax policy much earlier in the session than they usually do and that tax cuts were their top priority for the year.

Katarina Sostaric is IPR's State Government Reporter