GOP lawmakers propose estimated $1 billion reduction in Iowa income taxes

DES MOINES — Republican legislators plan to cut Iowans’ income taxes by a billion dollars next year.

Cuts approved two years ago would have implemented a flat rate of just under four percent in 2026. The new GOP plan goes lower, to 3.8% and it would take effect a year earlier, in 2025.

“This is a culmination of discussions we’ve had over the past few months here,” Senator Dan Dawson, a Republican from Council Bluffs, said early today as he convened a subcommittee hearing on the legislation. “…We’ve seen a variety of tax proposals in this building, but the biggest question is how do we get some of these monies back to Iowa taxpayers.”

Republican Representative Bobby Kaufmann of Wilton, chairman of the Ways and Means Committee in the Iowa House, spoke with reporters on the House floor. “This puts Iowa in the driver’s seat for being one of the most conservative states in the country, yet again, when it comes to taxation,” he said.

The plan also tweaks property tax limits the legislature enacted last year, letting some cities and counties a bit more property tax revenue. The bill has already cleared a Senate subcommittee this morning. Lobbyists for developers, banks and business groups are praising the legislation.

“We appreciate all the progress that has been made over the last several years in making our tax climate more competitive for both individuals and businesses,” Brad Hartkopt, a lobbyist for the Iowa Association of Business and Industry, told senators during the subcommittee hearing. “We believe this bill takes us in another step going in that direction and we support it.”

Mike Owen of Common Good Iowa, who testified via Zoom, said tax cuts should instead be targeted to Iowa’s working poor.

“This bill compounds a patently unfair tax system that we have. It takes us away from a tax system based on an ability to pay.” Owen said. “…I would add this is one more case of taxes directing budget choices rather than the other way around, where we could determine our needs, transparently set priorities, find the best way to fund them.”

Republicans say this latest round of tax cuts are possible because their state budget plan for next year doesn’t spend all of the available tax revenue and there will be a withdrawal from the Taxpayer Relief Fund. It’s where unspent taxes from previous years have been deposited. Representative Kaufmann indicated that Taxpayer Relief Fund will have more than $2 billion left in it after next year’s withdrawal.

“We’re showing here in Iowa that we’re fiscally responsible,” Kaufmann said. “We’re understanding concerns of mistakes made in other states. We’re still able to actualize growth, fund our priorities.”

Senator Dawson suggested there may not need to be a withdrawal from the Taxpayer Relief Fund if the economy grows, which will lead to more tax revenue for the state. “I think that this is the best of both worlds that leaves the conversation for long term, further tax cuts,” Dawson said, “as well as strategic opportunities.”

Dawson has proposed investing the nearly $4 billion the Taxpayer Relief Fund and using the profits to ratchet down the income tax rate over time, but that’s not included in this bill making its way through the legislature this week.

There are some other policies in the bill. It lets county boards of supervisors decide whether to keep or disband county compensation boards. Kaufmann said the boards have contributed to the “explosion” in property taxes.

“You’ve essentially got a group of friends getting together and recommending raises for each other…Counties cannot split the difference, look at things on merit,” Kaufmann said, “and so you’ve got an autopilot Ponzi scheme of property tax growth that the local county supervisors…have no control over.”

The bill also repeals an 1848 law that has required Lee County to maintain two county courthouses.