Staff Reports
Iowa has become the leading state in the country when it comes to implementing tax reform. The reforms that were implemented in 2022 were the biggest in the state's history. They also made the state the most comprehensive in the nation. By 2026, only four other states will have an income tax rate lower than Iowa.
According to experts in the field of taxation, the recent developments in the state tax reform arena have been regarded as a "golden era" for the reduction of taxes. Patrick Gleason of Americans for Tax Reform and Jared Walczak of the Tax Foundation agreed that the cuts are the most significant wave to hit the modern era.
John Hendrickson: Iowa is now the national gold standard leader in state tax reform. #iapolitics https://t.co/VM2dO8lJTu
— The Iowa Torch (@IowaTorch) July 27, 2023
Iowa's tax reform saga has been a contentious and lengthy one. The state first imposed sales and income taxes in 1934, with the goal of providing relief from property taxes. Over the years, various revisions have resulted in the income tax rate going from 13 percent to over 13 percent. On the other hand, the corporate tax in the state peaked at 12 percent.
The state's high tax rates were largely concealed by the various tax credits and deductions that were available to individuals and businesses. In 2018, the legislature was able to pass the biggest income tax cut in the history of Iowa. In 2022, the state was able to implement a comprehensive flat-tax reform. This new policy aims to phase out the progressive tax by 2026.
The corporate tax rate is expected to be lowered gradually until it reaches 5.5 percent. This is because the state's revenue trigger allows it to reduce the rate. Currently, the rate is around 8.8%. It is expected to reach 5.5 percent by 2026.
