A Historic Victory for Iowa Taxpayers
Iowa taxpayers are the big winners of the 2022 legislative session. Thanks to the new tax law enacted by Gov. Kim Reynolds on March 2, Iowans are set to receive the largest tax cut in state history.
Once fully implemented in 2026, Iowa’s new tax law will streamline the income tax to a flat rate of 3.9%. Every income taxpayer will receive a tax cut and a rate cut and that’s not the only reason it is a huge win for all Iowans.
For the second year in a row, the U-Haul Growth Index finds Texas, Florida, and Tennessee were the top growth states in 2021, meaning they experienced the greatest net gain of one-way U-Haul trucks. What else do these three states have in common? Texas, Florida, and Tennessee do not impose any individual income taxes.
Today there are eight “no-income-tax” states: Texas, Florida, Tennessee, Nevada, South Dakota, Alaska, Washington, and Wyoming.
Recognizing that people are pouring out of high tax states and into states that allow them to keep their hard-earned money, more states are working to reduce and eliminate their income taxes. Last year, 14 states passed legislation that will provide income tax relief, and key officials in many of these states want to keep chipping away at their income tax burdens until they hit zero.
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That momentum has carried into this year. Nearly a dozen states either already have or are currently working to provide income tax relief. This includes Mississippi and Kentucky, which are now moving to flat income tax rates of 4% as the first step towards eliminating their income taxes completely, as well as Idaho, which delivered the largest tax cut in state history for the second year in a row.
Iowa’s leaders have made significant improvements to the state tax code over the last several years. Gov. Reynolds and legislative leaders understand that to create a more competitive economic climate lower tax rates are necessary. Tax rates matter and the evidence is clear from the exodus taking place from people and businesses leaving high tax states.
Even after Iowa’s previous tax reform package would have been fully implemented in 2023, Iowa still would have been home to one of the highest income tax rates in the country. Its top marginal income tax rate – the part of the income tax that is most often used to make decisions about investment – would have been reduced from 8.53% to 6.5%. Still higher than Massachusetts and Illinois.
Rather than sitting back and allowing Iowa to fall behind, Gov. Reynolds, Senate Majority Leader Jack Whitver, House Speaker Pat Grassley, and many other legislative champions worked tirelessly this year to make their state competitive.
In just four years, Iowa’s income tax will be reduced to a flat income tax of 3.9%. This will make the Hawkeye State even more attractive to businesses looking to expand and families looking for greater prosperity. This investment will bring new jobs and opportunities for households across Iowa.
By moving to a flat rate, the new tax law will also protect all Iowans from future tax increases. While graduated income taxes divide taxpayers into small groups, allowing politicians to rob them one by one, flat taxes require politicians to justify tax increases to every single income tax filer. It is harder for politicians to increase a single rate income tax.
This tax cut would not have been possible had Gov. Reynolds and the legislature not committed to a policy of fiscal conservatism by adhering to prudent budgeting. Iowa followed the gold standard example of North Carolina: keeping spending levels low in order to facilitate sound pro-growth tax policy.
The new tax law is a huge win for all Iowans. Individual taxpayers and families will be able to keep more of their heard-earned money, business across Iowa will have more resources to invest in new jobs and higher wages, and Iowa will be better positioned to compete with the no and low-income tax states.
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Chris Hagenow is vice president of Iowans for Tax Relief and former Majority Leader of the Iowa House of Representatives. Grover Norquist is president of Americans for Tax Reform.
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