A study by a pro-business think tank says Iowa‘s state income tax cuts will create about 6,800 jobs in 2025 and increase the state’s GDP by $1.72 billion over the next decade.
Gov. Kim Reynolds last month signed into law a nearly $1 billion tax cut that reduces the state’s individual income tax to a flat, flat rate of 3.8% in 2025.
The measure, Senate File 2442, further accelerates and reduces previously planned income tax cuts passed in 2022. Iowa’s current top income tax rate is 5.7% and would have been reduced to a maximum rate of 4.82% in 2025 and then at a fixed rate of 3.9. % starting in 2026. The 2022 tax change also created a mechanism to reduce the corporate income tax rate to a flat level of 5.5% over time, as certain income conditions trigger tax reductions. rates. Iowa’s top corporate tax rate is now 7.1%.
The top individual income tax rate was 8.98% when Reynolds, a Republican, took office in 2017. Republicans have reduced state income taxes since gaining control of the legislative process, securing majorities in both chambers of the Iowa Legislature and in the governor’s office in 2017.
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Iowa’s tax revenues have remained largely strong as tax cuts have taken effect, leading Iowa Republicans to call for deeper cuts.
The Legislative Services Agency projected that acceleration would reduce state revenue and provide state income tax savings of an additional $328 million in budget year 2025, $605 million in fiscal year 2026, and approximately $100 million annually during each of the next four years, for a total of more than $1.3 billion over the next six years.
The reductions would be funded by the state’s $2 billion general fund surplus and the state’s Taxpayer Relief Fund, which is projected to have a balance of more than $3.7 billion at the close of the budget year.
“Despite challenging national headwinds, Iowa’s economy is stable and strong,” Reynolds said in a statement Monday about the Common Sense Institute Iowa study.
The nonpartisan research organization says it is “dedicated to the protection and promotion of Iowa’s economy.” The group’s board of directors includes representatives from the Iowa Business Council, the Cedar Rapids Metro Economic Alliance, the Iowa Association of Realtors and the Iowa Bankers Association, among others.
“The CSI study shows that Republicans’ conservative budgeting practices are paying off for everyone, even those who don’t pay income taxes,” Reynolds said. “Our common sense policies are creating jobs and putting more money in the pockets of Iowa workers, just as intended.”
The study states that the tax reduction will generate economic activity that will benefit Iowans, regardless of whether they pay income taxes.
Other key findings include:
- The economic stimulus resulting from SF 2442’s cut in individual income taxes will offset $120 million of lost revenue to the state over the first 10 years.
- Under three forecast scenarios, including two recessions of varying severity, the study found that Iowa’s recent tax cuts are sustainable in the long run.
- Under all three scenarios, including a recession comparable to 2008, the study found that Iowa could sustain additional tax cuts without reducing state spending for at least the next decade if it did so prudently.
- In 2025, SF 2442 will reduce income taxes for the typical Iowa household earning $75,000 per year by approximately $410, on top of savings from recent reforms.
Opponents argue that tax savings come at the expense of underfunded public schools and health care, water quality, roads, bridges and other services across the state.
House and Senate Democratic leaders have said further income tax cuts would disproportionately benefit the wealthy, who receive the biggest windfall from falling tax brackets, and provide no financial relief to thousands of Americans. Iowans who don’t pay income taxes.
The full Common Sense Institute Iowa study is at commonsenseinstituteia.org.
Reynolds issues storm disaster proclamation
Gov. Kim Reynolds on Monday issued a disaster proclamation for Kossuth and O’Brien counties in northwest Iowa in response to the severe weather.
The National Weather Service confirmed that a tornado briefly touched down Friday afternoon in Sheldon. The tornado tore off roof panels from three buildings and overturned several recreational vehicles. The weather service rated the tornado an EF0 with estimated maximum winds of 85 mph and a width of 75 yards. Surveys indicate he tracked it for almost a mile. No injuries or deaths were reported.
The governor’s proclamation activates the Individual Assistance Grant Program and the Iowa Disaster Defense Program.
The state program provides grants of up to $5,000 for households with incomes up to 200% of the federal poverty line for expenses incurred due to severe weather. Affected Iowans can apply to the Iowa Department of Homeland Security and applicants have 45 days from the date of the proclamation to apply.
For information about the Disaster Advocacy Program, contact your local community action agency or visit iowacommunityaction.org. Disaster advocates work with clients to create a disaster recovery plan.
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