Iowa’s individual income tax could be eliminated under Republican lawmakers’ plan

Iowa Republicans who lead tax-writing committees outlined a plan Thursday to eventually eliminate the state's individual income tax, signaling a desire in future years to go beyond tax cuts Gov. Kim Reynolds has asked legislators to make this session.

The plan, Senate Study Bill 3141, would attempt to lower Iowa's individual income tax, with a current top rate of 5.7%, to zero over a gradual period, using a new state trust and investing through Iowa's public retirement system.

Sen. Dan Dawson, R-Council Bluffs, who is sponsoring the legislation with Rep. Bobby Kaufmann, R-Wilton, called the bill a "starting point" as Republicans look for ways to continue cutting taxes amid a state budget surplus.

"Whether this session, next session, whatever the case may be, the question posed to taxpayers of Iowa is 'what do we do with this money?'" Dawson said.

Kaufmann said he and Dawson were looking for groups and lawmakers to lend their input on the proposal.

"This will happen as quickly as people are ready for it," he said.

Under the bill, current income tax cuts through 2026 would be accelerated, with an additional cut in 2027 bringing the rate down to 3.65%.

It also establishes the "Iowa Taxpayer Relief Trust," which would receive a $2.6 billion transfer from a new state fund. Once that trust becomes operable, 5% would be transferred annually to a state account dedicated to lowering the individual income tax.

The trust would have an oversight board and invest through Iowa Public Employees' Retirement System.

More: Kim Reynolds wants to cut Iowa taxes — again. Here's how it would work and who gets a break.

Democrats have sharply criticized Republicans' income tax cut proposals, arguing they left out significant portions of Iowa's population as they introduced a legislative package of their own Thursday to address wages and expand the sales tax holiday.

"Five hundred thousand Iowans do not pay income tax and will see no benefit from any of these Republican income tax proposals," said House Minority Leader Jennifer Konfrst. "That's why we proposed a way to address the sales tax. That's why we've proposed raising the minimum wage."

The Ways and Means chairs have also proposed a constitutional amendment that would require a two-thirds majority to approve any bill raising income tax rates in Iowa, and enshrines the flat tax rate in the state constitution. That resolution is Senate Study Bill 3142.

House tax chair: 'Reservations' about parts of Gov. Kim Reynolds' tax proposal

Dawson and Kaufmann said they plan to release a joint tax proposal of their own later this session.

The governor's bill, which aims to accelerate existing gradual income tax cuts among other measures, is being worked through, they told reporters Thursday.

Dawson said their new long-term plan offered "another alternative" to "add to the discussion," and Kaufmann indicated he had mixed opinions on Reynolds' bill.

"There's some really good things in the governor's tax bill that I like a lot," Kaufmann said. "There are some things I have some reservations about, and this is the legislative process. The governor's office has a bill, and now we as colleagues, chairs of the Ways and Means committees, we have a concept to shop out there. This is the process."

Reynolds' tax bill, which was introduced earlier this month, also seeks to lower businesses' top tax rate for unemployment taxes; changes how child care facilities are taxed; and combines two state reserve funds. It has not yet been scheduled for a subcommittee hearing in the House or Senate.

Galen Bacharier covers politics for the Register. Reach him at gbacharier@registermedia.com or (573) 219-7440, and follow him on Twitter @galenbacharier.

This article originally appeared on Des Moines Register: Iowa Legislature: Republican chairs want to eliminate income tax