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.
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.
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.
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.
