Cutting Taxes for Iowans
When Governor Reynolds took office in 2018, Iowa’s income tax rate was 8.98%—the sixth highest in the country. Now, after three historic tax cuts under her leadership, Iowa has reduced income taxes, eliminated tax on retirement income, and created an economic climate where businesses thrive—all while continuing to invest in key priorities like housing, broadband, child care, and more.
In 2022, Governor Reynolds and the Iowa Legislature took a bold but prudent step to further reform taxes by enacting a 3.9% income tax rate for all—flat and fair.
Even with the tax cuts already delivered, Iowa ended the year with a $1.8 billion surplus, more than $900 million in reserve funds, and $2.74 billion in the Taxpayer Relief Fund. The state is over collecting from Iowans—and they deserve to keep more of their hard-earned money.
Governor Reynolds proposes:
- Accelerating and further reducing the flat tax transition from the current top rate of 5.7% to a 3.65% flat rate in tax year 2024, and 3.5% in 2025.
- Simplifying the unemployment insurance system to make Iowa’s business climate more competitive.
- Creating property tax parity between commercial child care centers and in-home providers.
Income Tax Relief
In 2022, Governor Reynolds and the Iowa Legislature took a bold but prudent step to further reform taxes by enacting a 3.9% income tax rate for all—flat and fair. As it’s been gradually implemented, revenue to the state has continued to grow, generating a $1.83 billion budget surplus and cash reserves of $902 million, indicating that further income tax cuts are both possible and warranted.
- Effective this year, accelerate and enact the flat income tax at a reduced rate of 3.65% retroactive to January 1, 2024.
- Next year, reduce the flat rate even further to 3.5%, effective January 1, 2025.
- Modernize the cash reserve and economic emergency funds to index to the current needs of the state.
Unemployment Insurance Reform
Iowa’s unemployment tax rates rank 25th when compared to states nationwide. The Unemployment Trust Fund is at an all-time high of $1.8 billion, an amount well beyond what’s necessary to meet the short-term needs of Iowans out of work. Just as individuals deserve a tax break, so do the businesses that employ our workforce and invest in our state and local communities.
By simplifying the system and reducing our rates to the lowest level allowable under federal law, Iowa will cut the taxable wage base in half and reduce unemployment taxes by approximately 40%, helping companies of all sizes prosper—especially small businesses—and making Iowa more competitive.
- Reduce the Unemployment Trust Fund balance requirement to remain in the lowest tax rate table.
- Lower the maximum tax rate from 7% to 5.4% in all tax tables.
- Reduce the number of tax tables from eight to four.
- Reduce the tax table rankings from 21 to nine, effectively cutting overall tax categories from 168 to 36.
- Save employers more than $800 million over five years.
Child Care Property Tax Parity
A strong child care system empowers parents to remain in the workforce, contributing to their family’s well-being and our state’s economy. By aligning property taxes for commercial and residential child care providers, tuition can be more affordable for working parents.
- Create a subcategory of commercial property for child care centers, allowing them to be taxed at residential center rates and saving child care centers much needed funds that can be reinvested in their workforce.