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One major event this week was the release of the Senate Republican tax relief proposal.  During the first week of session, Senate leaders spoke about the priority of tax relief.  The Governor released her proposal last week, after dedicating a portion of her Condition of the State speech to the topic, and this week the Senate released its plan to tackle Iowa’s high tax rates and the overpayment of taxes by Iowans.

The tax relief package contains a number of sections, but the highlight of the bill is a major reduction in the income tax Iowans pay.  The top income tax bracket in Iowa, with a rate of 8.53%, currently applies to household incomes over $78,000 (approximately).  This income level threshold is much lower than other states.  Since the top rate starts so low, many middle-income Iowans are paying some of the highest tax rates in the country.  If our tax plan is fully implemented, Iowa will have a flat 3.6% tax rate.  Our state income tax rate would be the 4th lowest in the country instead of the 8th highest, as it is today.


Iowa also has a corporate tax rate of almost 10%.  Again, this is one of the highest in the country.  One consequence of a rate this high is the necessity for a series of credits and exemptions to attract investment to our state.  Certain companies and industries now pay a lower effective rate, or even nothing at all, but other companies not favored by the tax code have to pay the high rate.  This bill starts to solve the problem by reducing these carve-outs in exchange for a lower, fairer rate.

The bill also fully eliminates all taxes on retirement income, expands military pay exemption to full-time National Guard members, and provides farmers a first-time pension exemption by exempting income from either cash rent or farm crop shares.  There are many states, including Illinois, that do not tax pension income.  These policies will help to keep retired Iowans in our own state.

Author: Jeff Taylor

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