Iowa Governor Kim Reynolds pushed for individual income tax reform in her Condition of the State address in January. On Tuesday introduced her administration’s tax reform package.
Iowa currently has the fourth highest individual income tax top rate in the nation.
Under her plan rates will be cut by up to 23 percent that the administration says will result in $1.7 billion by 2023. For example, the top rate of 8.98 percent will be reduced to 6.9 percent by 2023 and will only apply to income above $160,965. Currently income above $73,260 is taxed at 8.98 percent.
“My plan combines meaningful tax relief while protecting our budget priorities,” Reynolds said ina. “We’ve prioritized tax relief for middle-class taxpayers, small business owners, teachers and working families across the state. We’re long past due for real tax reform that simplifies and updates our system while allowing Iowans to keep more of their hard-earned money in their communities.”
In 2019, the standard deduction will increase from $2,070 to $4,000 for single filers and from $5,090 to $8,000 for married filers. She also introduced an additional standard deduction of $1,500 for the elderly and blind in 2019, that will rise to $2,070 in 2021.
Here are some examples of how this plan will impact families:
- A typical single mother with one child making $30,000 will see a 28 percent tax cut next year. By 2023, she’ll see a 54 percent cut.
- A typical family of four making $55,000 will see a 10 percent tax cut next year. By 2023, they’ll see a 23 percent cut.
- A typical family of four making $70,000 will see an 8.7 percent tax cut next year. By 2023, they’ll see a 20 percent cut.
They provided a rate chart for comparison:
Reynolds’ plan will benefit teachers by fully coupling with the federal educator expense deduction to provide greater tax savings when they purchase school supplies for their classrooms. Also, Iowa’s small business owners will be able to deduct 25 percent of the new federal Qualified Business Income Deduction from their Iowa taxable income. The section 179 expensing limit will increase immediately from $25,000 to $100,000, allowing small businesses owners to invest in their companies and in Iowa.
She also introduced a school choice measure she mentioned in her Condition of the State address. Her plan will allow Iowans to invest in section 529 plans tax-free for K-12 tuition, not just higher education.
Reynolds’ plan will eliminate the Alternative Minimum Tax and will phase out federal deductibility that allowed Iowans to deduct their federal income taxes from their state taxable income. Without the state reforming income tax, Iowans will effectively see their taxes increase with the federal income tax cuts that take effect this year.
Iowa House Speaker Linda Upmeyer (R-Clear Lake) praised Reynolds’ plan.
“Governor Reynolds’ tax reform proposal delivers immediate and meaningful relief to middle-class Iowans. We appreciate that her plan leaves more money in the pockets of hard-working Iowans while also including safeguards that protect the sustainability of the budget,” she said. “House Republicans are ready to work with Governor Reynolds to reform Iowa’s outdated and complex tax code. We look forward to making it simpler, fairer, and more competitive for all Iowans.”