ROBIN OPSAHL – Iowa Capital Dispatch
The chairs of the Legislature’s tax-writing committees introduced a bill Thursday to gradually eliminate Iowa’s individual income tax. The proposal goes further than the tax cut plan Gov. Kim Reynolds introduced earlier in the session.
Rep. Bobby Kaufmann, R-Wilton, and Sen. Dan Dawson, R-Council Bluffs, introduced the legislation, Senate Study Bill 3141. The bill expands on the 2022 law reducing Iowa’s income tax rate to a single rate of 3.9% by 2026. Under the new proposal, the tax rate would drop in 2026 to 3.775% and fall again to 3.65% by 2027.
In subsequent years, further individual income tax reductions would be financed using the creation of the “Iowa Taxpayer Relief Trust,” which would receive an initial $2.6 billion transfer from the existing Taxpayer Relief Fund. Money from the trust, 5% each year, would be transferred to the “Income Tax Elimination Fund” and dedicated to individual income tax reductions until the tax reaches 0%.
Speaking with reporters, Kaufmann and Dawson called the bill a long-term plan aimed at beginning the process of fully eliminating Iowa’s individual income tax — a well-established goal for many Republican lawmakers.
“We have heard time and time again from our colleagues in both the House and Senate, as well as Iowans across the state, that we want to get Iowa to a zero-income-tax rate,” Kaufmann said, according to the Gazette. “And we believe these proposals will responsibly get us to that point and set our state up for continued success and stability for years to come.”
The trust would be managed by the Iowa Public Employees’ Retirement System, as would the Taxpayer Relief Fund.
Reynolds’ tax bill, House Study Bill 543, also proposes cutting individual income taxes, but does not move toward its complete elimination. Her proposal would bring the tax the current 5.7% rate to 3.65% in 2024, applied retroactively to the beginning of the year, with a drop to 3.5% in 2025. The bill also includes changes to the state unemployment insurance system, and would lower property taxes for commercial child care providers.
Dawson and Kaufmann said they are working through Reynolds’ tax proposal, but plan to release a joint tax bill later in the session.
House Speaker Pat Grassley said he spoke with Kaufmann about the income tax proposal, but that “the priority is still going to be for the short-term, and for this session, is going to be looking at how we can speed up the current income tax (cuts).”
“I think what Rep. Kaufmann, Sen. Dawson laid out is what a long-term conversation looks like for tax policy,” Grassley said. “So this session, I think the focus will be on how fast can we speed up the current 3.9% on the income tax. I think that’s going to be the driver of the conversation.”
The chairs also introduced Senate Study Bill 3142, a proposed constitutional amendment that would require a two-thirds majority to approve any income tax rate increases. The bill would also codify the flat tax rate in the Iowa state constitution — prohibiting graduated tax rates on the basis of income.
Grassley said this proposal is also a “longer-term” conversation.
“But also you just don’t know how the caucus is going to react when we have those conversations,” he added.
Iowa Democratic lawmakers spoke in opposition to the legislation. House Minority Leader Jennifer Konfrst said 500,000 Iowans already do not pay income tax and will see “no benefit” from the proposal.
“Let’s not forget that the people who benefit most are the richest Iowans,” Konfrst said. “So not only are we not helping middle class Iowans, we’re ignoring half a million of them.”
She instead called for the Legislature to pursue Democrats’ legislative policy package introduced Thursday, which includes measures to raise the state minimum wage to $15 per hour by 2026 and expand Iowa’s tax-free holiday in August from two days to two weeks.