Senate Republicans advance bill to eventually eliminate Iowa's income tax. Here's the plan

Iowa senators are advancing a bill that would eventually eliminate the state's income tax.

That comes after Gov. Kim Reynolds signed a $1.9 billion tax cut last year that included phasing down the state to a 3.9% flat income tax rate by 2026.

Why Republicans say Iowa can eliminate state income tax

Sen. Dan Dawson, R-Council Bluffs, who chairs the Senate Ways and Means Committee, said Iowa's revenues show the state can afford to get rid of the income tax.

Dawson said economic data since last year's tax cuts show the state can afford to be even more aggressive. And, he said, Iowa needs to keep cutting taxes to compete with other states that are also lowering their own rates.

"We can’t be complacent," he said. "We must continue to ensure we have a competitive tax code here in this state. What Iowa has done is causing our neighbors to react."

Dawson is in the midst of negotiating a property tax cut package this year, the details of which are still taking shape. He said he's considering the two proposals "in tandem."

Why Democrats say cutting income tax will hurt the poor

Sen. Herman Quirmbach, D-Ames, called the bill "fiscal suicide" and said it would result in cuts to state services.

"This is completely irresponsible," he said. "A flat tax, let’s translate it and call it what it really is: it’s a tax cut for the wealthy. You’re cutting the tax at the very bottom end only a tiny, tiny amount and the people at the top are making out like bandits."

How Iowa income tax would be eliminated

Reynolds has said she'd like to eliminate the income tax by the end of her current term in office, which would be 2027. She told the free-market Cato Institute on Feb. 10 that she wanted to wait to lower taxes further until she had a clearer picture of economic conditions.

"My goal is to get to zero individual income tax rate by the end of this second term," she said. "So we’re really focused on that. We would have probably taken a look at this year, bringing it down just a little bit more, but I wanted to just watch what was happening with the environment, with inflation and recession."

Senate Study Bill 1126 would lower Iowa's income tax rate to 3.55% in 2026, 2.95% in 2027 and 2.5% in 2028.

Beginning in 2030, the bill would transform Iowa's taxpayer relief fund into an "individual income tax elimination fund" and use the money in the fund to eventually lower the individual income tax rate further until it is eliminated entirely.

The bill would also lower Iowa's corporate tax rate to 4.75% over time. Last year's tax cut will eventually lower the corporate income tax rate in Iowa to 5.5%, assuming the state receives at least $700 million in tax revenue from corporations. The bill would allow the lower rate to kick in if Iowa receives $680 million from corporations.

Stephen Gruber-Miller covers the Iowa Statehouse and politics for the Register. He can be reached by email at sgrubermil@registermedia.com or by phone at 515-284-8169. Follow him on Twitter at @sgrubermiller.

This article originally appeared on Des Moines Register: Iowa bill eventually eliminating income tax moves ahead in Legislature