Breaking News
More () »

Iowa bill for flat income tax headed to Gov. Reynolds desk

The bill also eliminates state retirement income tax.

DES MOINES, Iowa — The Iowa Legislature sent a bill to Gov. Kim Reynolds Thursday that creates a 3.9% flat tax in four years, 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.

Republicans in the House and Senate negotiated a compromise agreement and passed it through the Senate and House in a few hours, sending it to Reynolds who had proposed a 4% flat tax. Iowa will join about 10 other states with a flat tax when she signs it.

Democrats argued the steep revenue cuts will help rich people 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.

“Everyday Iowans know that this plan is not fair. It is not fair to give multi-millionaires and billionaires a tax cut that is bigger than most Iowans earn in a year,” said Senate Democratic Leader Zach Wahls.

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 from eighth highest. He has said the goal is to eventually eliminate the state income tax.

RELATED: Iowa Supreme Court reconsiders state constitution's abortion right

Reynolds also released a statement commending the bill, which read in part:

"This bill rewards work, takes care of our farmers, and supports our retirees, all while protecting key state priorities. Iowans will reinvest these dollars in our economy, communities will prosper, and families will rest a little easier."

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.

RELATED: Gov. Kim Reynolds, Iowa's Congressional delegation react to Russian invasion of Ukraine

WATCH | Iowa couple reflects on personal connection to Ukraine, Russia crisis 

Before You Leave, Check This Out