Iowa Cuts Taxes by $2.8 Billion

Published June 12, 2018

The state of Iowa has implemented a sweeping tax cut.

The new law, initiated as House File 2489 and signed by Gov. Kim Reynolds, will reduce the total tax burden in the state by about $2.8 billion, cutting tax rates for all individual taxpayers and business owners, over the next six years.

By 2020, the ┬ástate’s top individual income tax rate will fall to 8.53 percent from the current 8.98 percent. The new law also reduces the state’s business tax from 12 percent to 9.8 percent.

Passing on Federal Tax Cuts

Iowa state Rep. Dave Deyoe (R-Nevada) says the state’s tax reform passes along the savings from federal tax relief enacted in December 2017.

“The first thing to be aware of, at least here in Iowa, is that we have a tax system of federal deductibility,” Deyoe said. “Because federal taxes are declining, that would’ve meant a large increase in taxes for Iowans. The first thing we wanted to do was offset that. We wanted to make sure that the tax cut went to our taxpayers and didn’t get sent back to the state government to increase funding for new programs that we didn’t need to be doing.”

Playing Catch-Up

Chris Ingstad, president of Iowans for Tax Relief, says the state’s current tax structure makes Iowa less attractive to business owners.

“Last year, the state released a study on how border counties of Iowa and South Dakota did economically over a 10 year period,” Ingstad said. “There were 103 new health care locations, and only eight opened in Iowa, and 95 opened in South Dakota. The gap in job growth was huge, too: we had 5 percent growth in Iowa and 75 percent growth in South Dakota counties.

“We know why that’s happening,” Ingstad said. “It’s because South Dakota has no state income tax.