DES MOINES, Iowa — Gov. Kim Reynolds signed a bill into law Tuesday that creates a 3.9% flat tax by 2026, eliminates taxes on retirement income and lowers taxes for corporations at an estimated cost of about $2 billion to a state with an annual $8 billion budget.
Reynolds and House Republicans had initially proposed a 4% flat tax while Senate Republicans initially wanted a tax rate of 3.6%. The Senate later amended the House bill, setting the 3.9% rate. Iowa will join about 10 other states with a flat tax under the new law.
"With this bill, Iowa is now the fourth lowest for individual income tax rate in the nation," Reynolds said. "There’s never been a better time in Iowa for bold, sustainable tax reform. This bill rewards work, takes care of our farmers, and supports our retirees, all while protecting key state priorities."
Democrats argued the steep revenue cuts will help rich people far more than average income earners and bring future economic problems for the state, risking inadequate funding for schools, prisons and mental health programs.
“Kim Reynolds’ agenda rewards her corporate donors, not hardworking Iowans. Under this reckless plan, she’s handing millionaires an extra $1200 a week, while teachers and truck drivers get less than $12 a week," said Iowa Democratic Party Chair Ross Wilburn.
Senate Republican Leader Jack Whitver said when fully implemented, it will move Iowa’s individual income tax rate to the fourth lowest in the country. He has said the goal is to eventually eliminate the state income tax.
"In this post pandemic economy, the competition is fierce for jobs and workers," Whitver said. "This bill will ensure that Iowa will compete for those jobs and workers."
Two Senate Democrats supported the bill. The final vote was 32-16.
The House passed its version of the tax cuts bill earlier this month, but agreed to the Senate changes by a vote of 61-34 with two Democrats voting for it.
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