The Iowa legislature and governor have passed a tax plan that will be the most aggressive change in state history. It has become an early test case for what could happen to other states with similar proposals.
The “Iowa sales tax changes 2021” is a bold proposal from Iowa Governor Kim Reynolds. The plan would reduce the state’s sales tax rate by one-third, and eliminate taxes on food and prescription drugs.
Governor Kim Reynolds of Iowa makes her State of the State speech to a joint session of the Iowa Legislature at the Statehouse in Des Moines on January 11th.
Associated Press photo by Charlie Neibergall
The economic recovery has resulted in a bonanza of tax money for state governments, which are on track to spend 9.3 percent more than they did in 2021. Kim Reynolds of Iowa is one of a few of governors who are returning money to taxpayers in order to keep the economy growing.
Gov. Reynolds has proposed a bold tax change that will boost the incentives for people to work and invest in Iowa. Her plan, which she revealed last week, would reorganize the state income tax by progressively combining tiers and lowering the rate to a flat 4% by 2026. “An average Iowa family will pay more than $1,300 less in taxes when the measure is fully implemented,” she added.
The flat 4% tax would reduce the highest rate in the state by more than a third. Iowans are already required to pay a 6.5 percent tax on incomes above $80,000, a level that captures the majority of the middle class. Gov. Reynolds’ plan would eliminate this and three other income tax levels.
The idea would also lower the state’s corporation tax, which is already one of the most onerous in the country. Companies domiciled in Iowa pay a state tax of 9.8% on profits above $250,000. Ms. Reynolds’ plan would progressively lower the top rate to 5.5 percent, restrict corporation tax collection at $700 million each year, and use the surplus to cover yearly rate reduction. Economically, a rate decrease would be preferable, since it would provide greater certainty for business investment choices. However, if the economy continues to expand, the revenue objective should be fulfilled.
These reforms will help Iowa maintain up with the rest of the Midwest in terms of tax competitiveness. To the west, Nebraska’s highest corporate tax rate was dropped to 7.25 percent from 7.81 percent last year, while to the east, Wisconsin’s Democratic Gov. Tony Evers signed a bill by the GOP Legislature that reduced the tax rate on middle earnings from 6.27 percent to 5.3 percent. In 2020, Illinois voters rejected a proposal that would have repealed the state’s flat tax of 4.95 percent.
Despite Gov. Reynolds’ prior income-tax cuts in 2018, Iowa ended 2021 with a $1.24 billion budget surplus. The cutbacks are being called economically unwise by Democrats in Des Moines, although previous budgets show the contrary. According to the Des Moines Register, Gov. Reynolds’ administration believes that income has climbed by around 4% per year in recent years, while expenditure has increased by 2% per year. This budgetary success has been fueled by business development and cutbacks to governmental agencies.
Gov. Reynolds also wants to exclude retirement income from state taxation, like as from 401(k)s. For a one-time sale, her proposal would exclude local company owners or workers from the state capital gains tax. Both clauses aim to diminish the financial incentive for elderly Iowans to relocate to states with lower taxes.
Last week, Gov. Reynolds made the critical point in her State of the State address, noting that tax money saved would be “invested every single day on major roadways.” Iowa’s economy and competitiveness have benefited from this mindset, and the state is setting a positive example for others.
Kim Strassel, Kyle Peterson, and Dan Henninger provide their picks for the best and worst of the week in the Journal Editorial Report. Getty Images/ZUMA Press/University Of Maryland School Of Medicine Mark Kelly’s composite
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The print issue of the January 20, 2022, was published.
Iowa’s Bold Tax Reform is a bill that has been proposed by Iowa Governor Kim Reynolds. The bill would reduce taxes and simplify the state’s tax code. Reference: iowa tax relief bill.
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