Iowa Looks To End State Income Tax

BarnAustin Goode

In 2022, Iowa Governor Kim Reynolds and the legislature will have the chance to pass significant tax reform.

"This is a once-in-a-generation chance to reduce Iowa's high-income tax rates and deliver considerable tax relief to Iowans," said Reynolds.

"It's also an opportunity for legislators to pass pro-growth tax reform that puts Iowa on the road to completely eliminate the state income tax," she added.

Tax reform is a top issue for Governor Reynolds and the Republican-led legislature.

The legislature enacted a comprehensive tax reform package in 2018 that broadened the sales tax base while also lowering individual and corporate income tax rates.

The legislature passed another comprehensive tax reform bill in 2021, which clarified the tax system by repealing the revenue triggers enacted as part of the 2018 tax reform law.

Governor Reynolds vowed that this was just the beginning of tax reform when she signed the 2021 tax reform package into law, and that her ultimate objective is to remove Iowa's income tax.

"However, we are not yet finished. As we continue to make Iowa an appealing place in America to establish a business, raise a family, and start a career, I'll propose significant income tax cuts next year," Governor Reynolds reiterated.

"There are around eight states that do not have an income tax at the moment, and I'd like Iowa to join the states that declare: 'The ultimate goal is to get to zero.' "

Tax reforms with the purpose of removing the income tax are being considered by states across the political spectrum.

A key takeaway from the US Census is that tax rates matter and that high-tax states are seeing a population exodus as individuals seek out states with lower tax rates.

Spending control, paired with income tax cuts based on revenue triggers, are effective strategies that states like North Carolina have utilized to establish pro-growth tax policies.

"A well-designed revenue trigger enables states to reduce their income taxes to zero without cutting existing spending or raising other taxes, and without risk of going off the rails. Income tax rates will be permanently cut if revenue reaches a particular level. It is a straightforward and responsible method of providing pro-growth tax relief. States must just ensure that the triggers are not too difficult to achieve."

The most challenging aspect of any tax reform is that it must also address spending and manage spending growth.

One study claims that states that tax income spend 56% more per inhabitant than ones that do not tax income.

The tax package looks likely to pass thanks to Iowa's unprecedented budget surplus and strong revenue outlook.

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