It is becoming common to expect the Republican majorities to cut income taxes every year or two. Combined with conservative budgeting principles, this pattern has served Iowa well. The 2022 session will continue the practice of returning tax dollars to citizens, but this year will be historic.
As I have reported in earlier newsletters, the governor made historic tax cuts the centerpiece of her agenda. The Senate tax team had been working on a broad proposal for a year, and even the House helped by taking the governor’s plan, downsizing it, and filing it as an official bill.
I was looking forward to the three-party negotiations as the Senate and governor’s plan had a lot of overlap, but many good ideas independently from which we could choose. This was looking very good for Iowa. The news broke on February 22 that our very own Governor Kim Reynolds was chosen to deliver the Republican response to the State of the Union address on March 2. This speech is an opportunity to showcase Iowa to a national audience with a popular governor and a conservative record that has Iowa at the top of most state lists of freedom and prosperity.
With the tax cut agreement done and passed in both chambers, it gives the governor yet another achievement to show America that there is a better way than the way just offered by the White House.
A tax omnibus bill was agreed to that incorporated the strongest components of the three bills that had been filed. Amendments were drafted to change one bill into the final version. I’d like to describe the final tax agreement. HF 2317 is mostly an individual income tax reduction bill. We will move from the 40th highest tax rate to the fourth lowest over four years. The rates will ratchet down as follows:
The important takeaway is that any state who successfully ended their income tax first transitioned to a flat tax to remove the class warfare arguments and give everyone an interest in lowering taxes further.
Another huge component was the governor’s idea to end income taxes on retirement income. Tax year ’23 will have a 100 percent exclusion of retirement income as currently defined in law. For the first time, retired farmers will have the opportunity to exempt income from cash rent or crop share income. See your tax preparer for details. This option won’t always be better than the current capital gains exemption, and you have to choose one or the other.
Corporate income tax will be addressed in a smaller way. We have among the highest business tax rates in the country. I have always argued corporations don’t pay taxes, as they have to pass this additional cost down to their customers. Customer uses after-tax dollars to buy the product or service. This amounts to a double tax, and it should be fixed. Unfortunately, Iowa also has among the most generous tax credit system, put in place to make up for a high tax system that scares businesses away. We will continue to work on this starting next week. This tax bill will knock one percent off the highest rate, but until we can address the tax credit system, not much more should be done.
I’m proud that Governor Reynolds will be in the national spotlight. Iowa has five years of conservative action that will be a great counterpoint to President Biden’s flawed solutions. I hope citizens and businesses hear our governor respond, see the great things we’ve done, and put Iowa on their list of places to live, raise a family, and have a business.