Substantial changes to Iowa tax law are phased-in beginning in 2019. The next four years will bring the following changes to our state’s tax code:
- Individual income tax cuts for all income levels, including a reduction in the top individual rate from 8.98% to 8.53%.
- A reduction of the top corporate tax rate from 12.0% (the nation’s highest!) to 9.8%.
- Modernizing the sales tax code to provide a level playing field between online businesses and brick and mortar businesses on Main Street.
- Increases in the Section 179 expense and Qualified Business Income deductions utilized by farmers and small businesses.
If Iowa’s revenue can reach a targeted amount of $8.3 billion by Fiscal Year 2022 (up from an estimated $7.1 billion in Fiscal Year 2018), additional changes will be made to the tax code:
- Federal deductibility will be eliminated, the number of income brackets will be reduced from nine to four, and the top individual rate will be reduced from 8.53% to 6.50%.
- Iowa income tax will be calculated based off of a taxpayer’s federal taxable income, meaning Iowans will utilize the same itemized or standard deductions for their state and federal returns.
- In total, the changes that could be triggered in 2022 could bring an additional $1 billion in relief over just two years.
The reforms passed by the Iowa legislature provide a solid base to build off of. But, as always, there is more that can be done. The additional changes that could be triggered for individuals in 2022 require the state’s revenue to grow at least 4% a year for four years in a row and that is a hurdle the state has not cleared very often over the past 20 years. While Iowans for Tax Relief supports the use of revenue triggers, taxpayers would be benefited by a more modest growth requirement and more frequent rate reductions. The much-needed reduction in the corporate rate could be improved on, as well. The new corporate rate of 9.80% is still tied for the highest of all of Iowa’s neighboring states.
Iowa’s families and businesses have already begun to feel the pro-growth impact of federal tax reform. The tax relief delivered by our state this year continues to build on this historic legislation. And if our state can deliver additional tax relief to Iowa’s families and businesses, that impact will be multiplied.
Iowans for Tax Relief applauds the legislature for taking action on tax reform this year and looks forward to working with our legislators next year to help implement these vital additional reforms.