Last week, Common Sense Institute Iowa published its study findings on the tax cut legislation we passed this session. The report brought a lot of welcome news for Iowans struggling to keep up with inflation and the negative effects of President Biden’s economy.
What Was Passed
First, let’s recap what we passed this session. Before this legislation, Iowa was on a path to phase the income tax rate to a flat rate of 3.9% by 2026 – moving Iowa from one of the top 10 worst states for individual income tax in 2018 to one of the 10 best by 2026. That tax cut was passed by the Legislature in 2022.
Iowa House Republicans entered this session with the goal of delivering as much relief as possible to help Iowans facing the consequences of Bidenomics. Senate File 2442 lowers Iowa’s income tax rate to a flat 3.8% beginning in 2025. This represents an income tax cut for all taxpaying Iowans.
What Did CSI Find?
The study found that Iowa’s Republican-enacted tax cuts over recent years will result in major increases in tax savings for Iowans, growth in GDP, and thousands of jobs.
Key Findings
Common Sense Institute’s dynamic economic simulation forecasts that over 10 years the SF 2442 income tax rate reductions will result in—
- $1.85 billion in tax savings for income-tax payers.
- $3 billion increase in after-tax income across the entire economy.
- $1.72 billion in GDP growth.
- Approximately 6,800 new jobs in 2025.
- The economic stimulus resulting from SF 2442 cutting individual income taxes will offset $120 million of the revenue loss to the state over the first 10 years.
- In three forecasted scenarios, including two recessions of varying severity, CSI found Iowa’s recent tax reductions are sustainable over the long term.
- In all three forecasted scenarios, including a recession comparable to 2008, CSI found Iowa could sustain additional tax reductions without reducing state spending over at least the next decade if it did so judiciously.
- In 2025, SF 2442 will reduce income taxes for the typical Iowa household earning $75,000 per year by approximately $410, in addition to savings from recent reforms.
- The typical household will see a reduction in their effective tax rate from 4.71% to 3.8% for 2025 and a reduction from 3.9% to 3.8% in future years.
We have passed multiple historic tax cuts since I became Appropriations Chairman and then Speaker of the House. With each one, we have been careful to ensure that the state could afford it and it would not result in the state’s inability to fund Iowans’ priorities. This report is more validation of our hard and careful work.
House Republicans will continue to pass legislation that allows Iowans to keep more of their hard-earned money in their pockets.
