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This week, I get to start off my newsletter with some great news. We reached a deal with the Governor and Iowa Senate to cut taxes for every Iowan. And on Thursday, we passed this tax cut plan through the House and sent it to the Governor’s desk!

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Here’s the Deal

The agreed-upon tax cut package looks very similar to what the House passed last week that I’ve outlined in past newsletters. Retirement income for all Iowans will be exempt from income taxes and it includes a new income tax exemption option for retired farmers. These changes are sure to help allow more Iowans to stay Iowans after they retire, rather than become Floridians or Illinoisians.

This tax plan goes just slightly lower on the income taxes than our original tax cut plan. It reduces the income tax to a fair and flat rate of 3.9% for all Iowans. With this change, Iowa will become the fourth lowest income tax state in the country. The lowest income bracket would have paid 4.4% in 2023. So this represents an income tax cut for every single Iowan. We’re extremely proud of that. With the Biden economy’s record-high inflation continuing to hit Iowa families’ wallets hard, this will provide a bit of the relief Iowans deserve.

Another change from our tax plan is that this plan includes a couple of pieces regarding corporate taxes. I’ve said from the start of session, that if we were going to look at lowering the corporate tax rate, which currently is the second-highest in the entire country, then we also need to take a look at reforming the corporate tax credit system. This plan follows through on that.

Allow me to get a little into the weeds here…

The bill reforms Iowa’s Refundable Corporate Tax Credits by cutting refundability by 5% per year for five years on refundable corporate tax credits that don’t have a sunset.  Ultimately, this lowers refundability to 75%. The exception is the Research Activities Credit, which is the state’s most expensive corporate tax credit. That credit lowers to 50% refundability over five years.

House Republicans – myself specifically – have wanted to reform these corporate tax credits for a while. In fact, I even tried to do so a few years back as Appropriations Chairman but there wasn’t much support for the idea in either chamber. Now, here we are, sending this important reform to the Governor’s desk. This is a great step in the right direction for our state. And because we are making this responsible reform, it allows us to begin to lower the corporate rate to attract more businesses to Iowa.

Under this tax plan, the corporate rate will be reduced if the state hits a set revenue amount. In a year where corporate tax revenue exceeds $700 million, the corporate rate will be reduced the following year. The rate will continue to be reduced each year revenue exceeds $700 million until it reaches 5.5%.

I think this is a great idea by our Governor Kim Reynolds. I talk a lot about budget sustainability, and this plan has budget sustainability baked right in. We can continue to make our corporate rate more competitive, which will attract more business to the state. But we can do it while ensuring that we are able to fund Iowans’ priorities in the state budget.

I’d Love to Hear From You

What are your thoughts on the tax cut plan? How will you and your friends and family be affected? Let me know!

Author: Pat Grassley

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