New tax cut will benefit all Iowa taxpayers
By Rep. Mike Sexton, R-Rockwell CIty
Week eight is ending here at the Statehouse. Like last week, we are spending most of your time on the floor debating House bills to get them out of the House and over to the Senate. As I have said many times before, when the weather is cold and snowy outside it is easy to sit down here knowing that Joe and Kayla are home taking good care of the sheep. But as the days get longer and the weather gets warmer the farmer in me wants to get out of this place and back home to see the change in the farm as we move from winter into spring.
As I worked on my news letter last week we were working on the biggest tax cut in Iowa history. The goal being give the surplus tax money back to the hard-working Iowans that paid it. We passed it last week during the snow storm on Thursday, so I decided I would write about it this week. On Tuesday they loaded on a bus at noon and we went to a local business in Des Moines where the governor signed the tax bill into law.
Thanks to the governor’s leadership and House Republicans’ conservative budgeting practices, Iowa’s economy remains strong – so strong that we have the opportunity to deliver the largest tax cut in Iowa history while continuing to fund Iowans’ priorities. House Republicans have been interested in corporate tax credit reform for many years. The inclusion of this piece in the final tax plan is a huge step in the right direction for our state. The agreement passed by both the Iowa House and Senate and was signed into law this week. This tax plan reduces individual income tax for all Iowans to a fair and flat rate of 3.9 percent. That puts Iowa at the fourth lowest income tax rate in the country. It also exempts retirement income from taxes and includes a new income exemption for retired farmers so we can keep more folks in Iowa after they retire. Finally, it makes the corporate tax rate more competitive while reducing refundability on the state’s most expensive Refundable Corporate Tax Credits
Under this tax plan, the corporate tax rate will be reduced if the state hits a revenue trigger. In a year where corporate tax revenue exceeds $700 million, the corporate rate will be reduced the following year. This rate will continue to reduce each year revenue is over $700 million until it reaches 5.5 percent.This will allow us to lower our corporate tax rate, which is one of the highest in the nation, while ensuring budget sustainability. Additionally, this bill reforms Iowa’s Refundable Corporate Tax Credits by cutting refundability by 5 percent per year for five years on all refundable corporate tax credits that don’t currently have a sunset, ultimately lowering refundability to 75 percent. The Research Activities Credit, the state’s most expensive corporate tax credit, lowers to 50 percent refundability over five years.
This bill provides that a retired farmer’s income from rental of their property is exempt from tax. The farmer must be 55 and must have farmed for at least 10 years. If the farmer choses this exemption, they are not eligible for the capital gains exclusion. This change begins in tax year 2023. Famers do not always have access to traditional retirement vehicles and accounts. They have been investing their entire lives in their “retirement account”–their land! This exclusion will allow a farmer to rent their land to the next generation and not pay taxes on that “retirement” income.
The tax bill provides for a flat tax of 3.9 percent on all taxable income. This begins in tax year 2026. This provision helps the single mom with two kids and Iowa taxable income of $25,000. That mom would pay $714 in Iowa taxes under our current law, but will only pay $521 in 2026 because of this bill. That is a 27 percent reduction in her taxes. This provision also helps the family of four with two working parents who have Iowa taxable income of $50,000. That family would pay $1,918 under our current law, but have that number cut to $1,520 because of this tax cut. That’s more than a 20 percent tax cut for that middle-class, working family.
Currently, Iowa Code provides for an income tax exclusion for the first $6,000 of retirement income. This provides that all retirement income would be excluded from tax. The change begins in tax year 2023. This is a huge help to retired teachers, nurses, and police officers. Any kind of qualified retirement plan would be tax free. This includes IPERS, 401(k)s, 403(b)s, IRAs, etc. We want people who grew up, worked, and raised families in Iowa to keep Iowa as their home in their golden years. This provision will make that dream a reality.
So, who does House File 2317 help? Everyone who pays taxes in Iowa. Some will complain that two-thirds of Iowans making less than $10,000 see no change. There is no tax cut the Legislature can pass that will cut the taxes of people who pay no taxes, who are below the filing threshold, and who just file a return to get a refund. The tax code already benefits them. With House File 2317, not one person sees their taxes go up. The average tax cut for a taxpayer will be over $1,000. That is a real cut that puts more money in the pockets of hard-working Iowans and more money in Iowa’s economy.
Many of you have asked me about a bottle bill this year. I shared with you that I was not very optimistic about anything moving this year. This week I have found out they are trying to get something done in the Senate as well as the House. I do not know any details yet but I will try to keep you posted.
State Rep. Mike Sexton, R-Rockwell City, represents Calhoun, Humboldt and Pocahontas counties plus western Webster County.