Iowa Governor Kim Reynolds and the legislature will have an opportunity to enact significant tax reform in 2022. Iowa’s fiscal house is in strong condition with a $1.24 billion surplus and the recent Revenue Estimating Conference (REC) projections show strong revenue growth for Fiscal Years 2022 and 2023. This is a historic opportunity to lower Iowa’s high income tax rates and provide significant tax relief for taxpayers. It is also an opportunity for policymakers to enact pro-growth tax reform that starts Iowa on the path to eliminate the state income tax.
Governor Reynolds and the Republican-led legislature have made tax reform a priority. In 2018, the legislature passed a comprehensive tax reform bill that broadened the sales tax base and lowered both the individual and corporate income tax rates. In 2021, the legislature passed another comprehensive tax reform measure that brought clarity to the tax code by eliminating the revenue triggers that had been put in place in the 2018 tax reform law. By eliminating the triggers, the top individual income tax will be lowered to 6.5 percent in 2023. Iowa’s corporate tax rate is 9.8 percent, which even though was lowered from 12 percent, is still considerably high and uncompetitive.
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