House inheritance tax phaseout differs from ‘aggressive’ Senate plan

By: - March 29, 2021 3:46 pm

The Iowa State Capitol. (Photo by Katie Akin/Iowa Capital Dispatch)

A panel of Iowa House lawmakers moved a bill Monday that would eliminate Iowa’s inheritance tax by 2024.

House File 841 passed out of subcommittee Monday afternoon. The bill would gradually raise the size of an estate exempted from the tax: the $25,000 maximum would become $300,000 this year, then would increase to $600,000 and $1 million. The inheritance tax would be completely repealed on July 1, 2024. 

Rep. Dave Jacoby, D-Coralville, proposed accelerating the process even further by immediately repealing the inheritance tax.

“I think the budget can absorb it,” he said. “Why don’t we just go ahead and eliminate this inheritance tax starting this calendar year?”

Rep. Jane Bloomingdale, R-Northwood, responded that the reduction in state revenues due to repealing the inheritance tax would be about $90 million per year.

“I would love to have it phased out right away, but also trying to be realistic on the expenses, I’m not sure that can happen,” she said.

The Senate unanimously passed a similar bill, Senate File 576, on March 17. Rather than increasing the size of an estate that would be exempt, the Senate proposal would gradually reduce inheritance tax rates over three years before repealing the tax altogether in 2024. The Senate bill would also accelerate income tax cuts to take effect in 2023, despite the fact that the state has not reached revenue growth targets identified in the 2018 law.

House Republican leaders have raised concerns about the Senate’s plan. House Speaker Pat Grassley, R-New Hartford, told reporters in mid-March that it could be too “aggressive” to eliminate the inheritance tax while also accelerating income tax cuts. House File 841 does not deal with income tax.

The $1.9 trillion federal relief package also complicates tax cut plans. The bill prohibits states from using federal money to “directly or indirectly offset a reduction in the net tax revenue.” Grassley has said it is unclear what that means for state legislatures that decide to pass tax cuts in 2021.

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Katie Akin
Katie Akin

Katie Akin is a former Iowa Capital Dispatch reporter. Katie began her career as an intern at PolitiFact, debunking viral fake news and fact-checking state and national politicians. She moved to Iowa in 2019 for a politics internship at the Des Moines Register, where she assisted with Iowa Caucus coverage, multimedia projects and the Register’s Iowa Poll. She became the Register’s retail reporter in early 2020, chronicling the impact of the COVID-19 pandemic on Central Iowa’s restaurants and retailers.