DES MOINES — Senate Democratic Leader Pam Jochum says Democrats are developing a plan of targeted income tax cuts, like raising the Earned Income Tax Credit for low and moderate income workers, as an alternative to the GOP goal of getting rid of the state’s income tax.
“If there’s going to be any changes in the tax system, number one you don’t eliminate the income tax system because it is a more fair system,” Jochum says, “based on the ability to pay.”
Governor Kim Reynolds and Republican lawmakers say their ultimate goal is complete elimination of the state income tax. Reynolds approved income tax rate reductions in 2018 and, in 2022, the governor signed a bill that is making deeper cuts in tax rates for individuals and corporations. It will eventually shrink the individual income tax rate to just under four percent by 2026. “We have been waiting almost six years as working class or middle class Iowans to see any result of even the tax cuts that happened six years ago,” Jochum says.
Jochum points to a Department of Revenue analysis which found that if the state income tax is eliminated, the state sales tax would have to be raised to 14 percent to maintain critical state services. “The sales tax is a regressive tax,” Jochum says. “Regardless of how much money you earn, you’re going to pay 14% on the dollar for everything you purchase and so it’s going to be the working poor, the middle class who are really going to take it in the shorts on this one if that’s the path they follow.”
Republicans in the Senate say eliminating the state income tax will make Iowa more competitive with states like South Dakota, Florida, Texas and Tennessee that do not have a state income tax. A Des Moines Register Iowa Poll conducted last March found 56 percent of Iowans favor gradually reducing the state income tax rate until it is eliminated.