The following is a legislative update from State Senator Waylon Brown, representing Iowa Senate District 26 which includes portions of Cerro Gordo, Mitchell, Worth, Floyd, Howard, Chickasaw and Howard counties:
This week, the Senate Republican tax reform proposal was released and contains a number of sections, but the highlight of the bill is a major reduction in the income tax Iowans pay.
The top income tax rate in Iowa, 8.53 percent, currently applies for earnings over roughly $78,000, a level much lower than other states. Since the top rate starts so low, many middle-income Iowans are paying some of the highest tax rates in the country. When this new tax bill is fully implemented Iowa will have a flat 3.6 percent tax rate. Our state tax rate will be the 4th lowest income tax rate in the country instead of the 8th highest as it is today.
Other highlights of the bill include:
- Lowers the corporate rate to a flat 7.8%, reduced from 9.8% today by reforming credits and exemptions
- Fully eliminates all taxes on retirement income
- Expands military pay exemption to National Guard members
- Provides farmers a first-time pension exemption by exempting income from either cash rent or farm crop shares
- Restructures the Taxpayer Relief Fund by turning it into the Income Tax Elimination Fund, directing the fund to be used to automatically reduce future individual income tax rates and ultimately eliminate the personal income tax in Iowa
These points are top priorities of our legislative reform of the Iowa income tax structure.
In the Governor’s vision for tax cuts for all Iowans the proposal is a flat, fair 4% individual income tax rate, meaning Iowans keep more of their hard-earned pay upfront.
- Beginning in tax year 2023, four tax brackets ranging from 4.4% to 6.0% would be implemented
- In subsequent tax years, the top rate annually will be eliminated until a 4% flat tax rate is achieved in tax year 2026.
- A 4% flat tax is projected to save Iowa taxpayers more than $1,583 Billion by tax year 2026.
How does the governor’s bill affect low-income Iowans?
- A flat tax will NOT result in low-income Iowans paying more. Additionally, low to moderate-income earners who qualify for the Federal Earned Income Tax Credit (EITC) and other available tax credits, will continue to receive a state tax refund when tax credits exceed the amount of state tax liability.
Iowans who’ve worked hard, saved for retirement, and paid their fair share in taxes deserve a break to enjoy what they’ve earned and will see a full repeal of state taxes on retirement income in 2023.
- Beginning in tax year 2023, Iowans age 55 and older would be exempt from state tax on retirement income earned from individual retirement account (IRA) distributions, taxable pensions, and annuities.
- Beginning in tax year 2023, Iowa farmers age 55 and older who farmed for at least 10 years but have retired from farming operations, can elect an exemption of income from either cash rent or farm crop shares for all years the income is earned, or elect one, lifetime exclusion from the net capital gains tax on the sale of farmland.
As we work through the tax reform, the legislature and the governor’s office will work together to bring forward a compromised plan for all Iowans.
I’m asking you, hard-working Iowans, to share your thoughts, ideas and insight how we can best make tax reform good for you. Please send me your suggestions, input and ideas. Or if you have questions, please reach out.