Corporate tax cuts triggered as Iowa announces nearly $2 billion surplus

The growth of Iowa’s budget surplus to nearly $2 billion in fiscal year 2022 will trigger corporate tax cuts passed during this year’s legislative session, Gov. Kim Reynolds announced Tuesday.

Iowa is closing the books on fiscal year 2022 with $1.91 billion in the state’s general fund, $1.06 billion in the Taxpayer Relief Fund and $830 million in reserve funds, according to the governor’s news release. The budget year ended June 30 but the annual accrual period ends Sept. 30.

The ending balances are roughly $670 million more than the previous year’s surplus, according to Legislative Services Agency and governor’s office information.

That increase enacts corporate tax cuts passed during the 2022 legislative session. When Iowa hit $700 million in corporate income tax receipts, the law lowers the corporate tax rate from 9.8% to 8.4% and reduces the number of corporate tax rates from three to two.

Reynolds said Iowa was not expected to hit that threshold until 2027, but the state net corporate income tax receipts exceeded $850 million this year.

Reynolds said the surplus proves Iowa Republicans’ tax cutting strategy was “worth every penny.”

“Iowans want common-sense responsible policies even when it requires going against the grain,” Reynolds said in a news release. “We cut taxes when many said our budget couldn’t handle it; we kept our economy open when few others were; we chose growth over government even when it was hard. As a result, our fiscal health is strong, and our tax code is more competitive than ever.”

Democrats criticized the tax cuts, saying the move will provide less funding for needed state services in favor of giving more money to large corporations. In addition to the changes to corporate taxes, state income taxes will be reduced for all income brackets, with a single-bracket income tax scheduled to take effect by 2026.

“Instead of lowering costs for Iowans and investing in our public schools, Kim Reynolds is celebrating another huge handout she gave to some of the biggest corporations in the world, like Amazon,” Iowa House Democratic Whip Lindsay James said in a statement. “It’s more apparent than ever that Reynolds and GOP politicians in Des Moines are more interested in politics and rewarding special interests, not doing what’s best for Iowans.”