Reynolds signs major tax cuts into law
Bill-signing comes just hours before Reynolds delivers national speech
Republican lawmakers watch Gov. Kim Reynolds sign a tax cut into law. (Photo by Katie Akin/Iowa Capital Dispatch)
Surrounded by dozens of Republican lawmakers, Gov. Kim Reynolds signed a major tax cut into law Tuesday afternoon, securing a legislative priority hours before delivering a national address Tuesday night.
Republicans reached a compromise on the package Thursday, passing a final deal through the House and Senate in a one-day sprint. The law will change Iowa’s income tax rate to a flat 3.9%, reduce corporate taxes and eliminate the state tax on retirement income.
“We’re sending a very clear message to the rest of the country that Iowa is open for business,” Reynolds said.
Read more: Iowa lawmakers pass massive tax cut
Reynolds signed the bill in Des Moines on Tuesday afternoon. She will deliver the Republican response to President Joe Biden’s State of the Union address on Tuesday night.
House Speaker Pat Grassley said lawmakers did not rush the bill’s passage ahead of the speech, but both Grassley and Senate Majority Leader Jack Whitver acknowledged the tax cuts would likely be part of the governor’s narrative.
“I think she has an opportunity tonight to tell the Iowa story over the last couple years,” Whitver said. “And, certainly, tax reform and this bill that we signed today (are) a huge part of that Iowa story.”
Read more: How to watch Gov. Kim Reynolds’ State of the Union response
The Iowa Democratic Party objected to the law, calling the tax cuts “reckless” in a Tuesday statement. The majority of Democrats in the Iowa Legislature opposed the bill.
“A flat tax isn’t fair, and Kim Reynolds is doubling down on an outdated tax policy that has failed other states – and will fail Iowans,” Iowa Democratic Party Chair Ross Wilburn said. “We need a tax plan that not only funds our communities fairly but also puts cash in the pockets of all Iowans, not just a wealthy few.”
What do the tax cuts mean for me?
Most of the changes in the 2022 tax package will phase in gradually, which Whitver said was a mechanism to ensure Iowa could “continue to fund priorities.” But some of the changes will begin as soon as 2023.
“Iowans can expect a tax reduction right away, and then even more as we go through the next four years,” Whitver said.
The first change Iowans will see is the elimination of a state tax on retirement income. Beginning in 2023, the state will no longer tax 401(k)s, pensions and IRAs. Retired farmers will be eligible for new tax exemptions in 2023, including an option to exempt income from cash rent or crop-share agreements.
The flat income tax will come into effect fully by 2026. Until then, the state will gradually eliminate the highest tax bracket, lowering the rate until everyone is at 3.9%.
Corporate taxes will also decrease gradually, based on the amount the state collects each year. Every year Iowa has more than $700 million in net corporate income tax receipts, the top rate will decrease, working its way down to 5.5%.
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