This week is the first post-funnel week, and we spent most of the week busy in debate on the House floor. Many of the bills passed unanimously or near-unanimously. We passed bills ensuring that worker’s compensation pays for prosthetics which are necessary due to a work-related injury; strengthening laws and increasing penalties for people convicted of certain sex offenses; and allowing county hospital trustees to receive compensation for the great work they do.
With all those bills, however, there is one that is perhaps the most monumental and consequential of all the bills that we have passed. An agreement was reached on House File 2317, the major piece of tax legislation this year. This bill is essentially the same that we passed off the House floor earlier this year with a few additions. The totality of tax cuts that Iowans will see are:
- Taxpayers are allowed a once-in-a-lifetime exclusion from income tax of the sale of capital stock held in ESOPs. This exclusion is phased in over three years starting in tax year 2023. This tax savings will affect employees who are part of an employee-owned company who have their retirement as company stock.
- Taxpayers who are at least 55 years old, who were active farmers for at least 10 years and retired, will be able to exempt their rental income from their farm ground beginning in tax year 2023. The farmer will need to elect this option or the capital gains exclusion in number three below. We know that for many Iowa farmers, their retirement is in their land.
- A retired Iowa Farmer will be able to exclude the gain from the sale of farm ground or livestock, one time in their life beginning in tax year 2023. They will need to elect between this option and the exclusion of rental income in number two above.
- All Iowa taxpayers will be moved to a flat 3.9% tax. This would be phased in over period of four years with the final flat tax being effective in tax year 2026.
- Under current law, taxpayers are able to exclude the first $6,000.00 of retirement income (pensions, 401ks, IRAs, etc.) from income tax. This bill now provides a full exemption from taxes for retirement income beginning in tax year 2023. We know many Iowans decide to leave the state in retirement due to other states not taxing retirement, and this provision will help prevent that flight.
- Corporate tax rates will be reduced when the revenue generated from corporate taxes exceeds $700 million per year, until the rate reaches a flat 5.5%. We know that companies make business decisions based upon tax rates, and so this reduction will encourage companies to grow their operations within the state of Iowa.
- House Republicans have been adamant that any discussion of corporate tax rates must also include a discussion on corporate tax credits. This bill reduces the fundability of the Research and Activities and Supplemental Research and Activities Credit over a period of five years. In addition, other corporate tax credits without a sunset will also have their refundability reduced. For years, we have heard Democrats talk about corporate tax credits, and this year we take a major bite out of them.
- Several years ago, the Taxpayer Relief Fund was created as a way of providing tax relief to Iowans. This fund contains over $1 billion, and will be used in the event that revenue growth projections do not hit 3.5%. This conservative approach ensures that Iowa remains in a solid financial position and utilizes the fund to do what it is supposed to, provide tax relief for Iowans.
- There are other minor provisions, like uncoupling the geothermal tax credit from the federal credit and sunsetting it in 2023; lowering the amount from $300,000 to $100,000 that an individual can claim for the Endow Iowa tax credit; and requiring IEDA to prioritize projects with research in its High Quality Jobs program.
As I am writing this, the compromise has passed the Senate and we are awaiting debate in the House as Democrats are still in caucus. This is the most historic piece of legislation that many of us have ever passed. It will catapult Iowa from being one of the worst states for taxes to one of the best. All taxpayers will see a tax reduction under this bill, and all Iowans win.