The first effects of an extended tax relief plan approved by Gov. Kim Reynolds in March will be felt by Iowa’s largest firms next year. The precise impact became obvious Tuesday when the state announced a $1.91 billion overall budget surplus for the previous year, up from $1.24 billion the year before.
The office of Representative Reynolds claims that the state’s maximum corporate tax rate would drop from 9.8% to 8.4% under their proposed plan. The new law lowers company tax rates based on the amount of money collected by the state the previous year.
On the other hand, individuals will not experience income tax cuts until 2023, only for those earning $75,000 or more, when the rate will be reduced to 6%. They were scheduled to start no matter how much money the state got.
Reynolds observed that the surplus and tax cut reflect the state’s financial condition. Her administration has been prudently lowering taxes through legislation passed over the last few years.
“As today’s budget results show, they were well worth every penny, ” Reynolds said. “Over the last five years, we’ve repeatedly challenged the self-appointed experts who declared that tax cuts and economic development wouldn’t be worth the cost.”
The announcement came as Iowa finished its fiscal year in June.
Democrats rejected the current tax cut bill and slammed Republicans over the announcement. They claim it demonstrates that Republicans favor businesses over regular Iowans and underinvest in state services.
“Iowa residents are sick and weary of politicians who prioritize corporations over people,” said state Rep. Lindsay James, D-Dubuque, in a statement. “Kim Reynolds is celebrating another massive handout she delivered to some of the world’s wealthiest corporations, like Amazon. She should decrease Iowans’ prices and invest in our public schools.”
Corporate taxes in Iowa are decreasing. How much is it?
Iowa’s corporate tax rate is decreasing due to a significant tax reform package signed into law by Reynolds on March 1.
According to the new law, the surplus will reduce the highest corporate tax rate if the state receives more than $700 million in net corporation tax receipts. Although, it will remain so until all businesses pay a 5.5% tax.
According to Reynolds’ office, Iowa pulled approximately $850 million last year, causing the top bracket to decline from 9.8% to 8.4% this year. As a result, Iowa now has two corporation tax rates rather than three, a reduction that the state had not previously anticipated occurring until 2027.
According to Reynolds, the law has made Iowa’s tax code more competitive.
“There was a time when our country was among the few that managed to keep its economy afloat. We chose growth over the government, even when it was painful. We lowered taxes when many thought our budget couldn’t handle it. Consequently, our government’s finances are sound, and our tax code is more competitive than ever.”
However, Democrats who opposed the measure claimed that the reform shifted Iowa’s objectives.
Senate Democratic Leader Zach Wahls, a Democrat from Coralville, said that since 2018, Iowa Republican lawmakers had tax relief to the extremely wealthy and large corporations. Ironically, this was done while disregarding the rest of Iowa.
In addition to lowering the corporate tax rate, the new bill signed by Reynolds this year would begin lowering individual income taxes to a flat 3.9% percent by 2026. This will abolish the state’s numerous brackets, resulting in higher-income Iowans paying the same rate as lower-income Iowans.
Retirement income like 401(k)s, IRAs, and pensions will be tax-free under the new law, as will some tax incentives for retired farmers and a reduction in the size of some business tax credits.
The nonpartisan Legislative Services Agency estimated that by the sixth year, the tax cut would reduce state revenues by nearly $1.9 billion.
Republicans hail their tax cut package while Iowa’s surplus expands.
Reynolds has signed several tax cuts into law for 2018, 2021, and 2022. Republicans have cited Iowa’s budget surplus and predicted growth as justifications for passing the reductions.
“Iowa’s solid financial situation once again demonstrates that we continue to over-collect from Iowa taxpayers,” said Kraig Paulsen, head of Iowa’s Department of Management, in a statement Tuesday.
Conservatives in Iowa have said that the state’s budget surplus proves that Republican leaders are giving too much savings to the wealthy and corporations. This was at the expense of K-12 education and other state services.
“We know she has been starving our systems while she sits back and enjoys the surplus and brags about tax cuts that don’t affect the majority of Iowans,” a source said. “She opposed the American Rescue and Reinvestment Act and has been utilizing cash to bail her out of starving our systems.”
In November, Reynolds will face Democratic candidate Deidre DeJear.
DeJear has said on the campaign trail that she supports using Iowa’s surplus on necessities like a temporary increase in education funding.
“There is a dearth of investment in health and mental health care, public education, and rural communities. It’s past time to put Iowans’ tax dollars to good use and invest in Iowa’s future,” she said.
More than $10.4 billion in pandemic relief has been supplied by the federal government as Iowa continues to recover economically from the COVID-19 pandemic. Much of the fund went directly to state agencies for specific objectives.
Reynolds had direct control over $2.7 billion in aid, unlike most Iowa governors. She has put the money toward several goals, such as expanding the internet, building homes, paying for child care, and strengthening Iowa’s unemployment trust fund.
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