DES MOINES, Iowa – The Iowa Legislature passed SF 619, sending a bill that offers various tax reforms to Gov. Kim Reynolds. The bill passed in both chambers with some bipartisan support. The Iowa Senate passed the bill on Monday, 29 to 15, and the Iowa House passed the bill 64 to 28 on Tuesday.
The bill is projected to allow Iowa taxpayers and small business owners to keep more than $1 billion over the next eight years.
Highlights of the bill include:
- Removal of triggers from the 2018 tax reform bill ensures income tax cuts for all Iowans will go into effect on January 1, 2023. With the removal of the triggers, the top tax rate drops from 8.53 percent to 6.5 percent. It also reduces the number of tax brackets from nine to four and eliminates federal income tax deductibility. It is projected to save taxpayers over $350 million.
- Increases the eligibility for the Child Care Tax Credits from families making $45k to $90k
- Exempts COVID-19 grant money and Paycheck Protection Plan loans from state income tax conforming with federal law This exempts all 2019 tax filers from any taxes on forgivable PPP funds. It will give back small business 2019 tax filers over $5 million.
- It phases out the state inheritance tax over five years that will save taxpayers nearly $100 million once fully implemented.
- Requires payment parity for mental health services provided via telehealth and in-person
- It couples Iowa tax law with federal bonus depreciation for qualified equipment and other capital assets purchased on or after January 1, 2021. It will save taxpayers nearly $75 million over five years.
- Increases workforce housing tax credits to $40 million for Fiscal Year 2022 and $35 million for the following years
- Phases out the mental health levy over two years, saving property taxpayers over $100 million.
“The Iowa Senate made Iowa more competitive. Reducing the top income tax rate to 6.5 percent means Iowa families will keep more of the money they earn. Lower income tax rates make this state more attractive to small business and people looking for a new home,” Senate Majority Leader Jack Whitver, R-Ankeny, said. “Phasing out the inheritance tax ends the unjust practice of taxing the dead. Eliminating the mental health levy finally provides actual property tax relief for Iowans. Iowans asked for tax relief and the Iowa Senate has answered those calls.”
State Senator Dan Dawson, R-Council Bluffs, was the bill manager in the Iowa Senate and the chair of the Iowa Senate Ways and Means Committee, said Senate Republicans delivered on their promise to pass tax reform this session.
“Senate Republicans promised bold tax reform when the session started in January and this bill delivered,” he said. “This bill includes eliminating the tax triggers, eliminating the inheritance tax, provides tax relief for small business, and provides tax cuts for Iowa families. Senate File 619 is the tax bill Iowans deserve and I am proud to have it pass the Iowa Senate.”
Senate Minority Leader Zach Wahls, D-Coralville, said the tax reform plan is dependent on one-time federal spending.
“What we just heard was the bait and switch that is at the heart of Senate File 619. Thanks to President Biden and Democrats in Congress, it is absolutely true that cities and counties across Iowa are receiving one-time dollars to build our state back better,” he said. “What Senate Republicans are doing with Senate File 619 is to take advantage of those one-time dollars to offset the cut to these cities and counties. But we know that these one-time dollars have to be spent, and they have to be spent quickly. These are going to be phased out the property tax in perpetuity. So when your property taxes are higher in 2024, than they are today, thank you Republican State Senator.”
Dawson countered in his closing remarks.
“This is no bait and switch. The numbers stand for themselves (we’ve) said this time and time again, we’re not using federal monies for tax cuts. We’re using current monies right now because we’ve been budgeting responsibly all of these years. The money in this tax cut is something we’ve built into our surpluses. Anything else is basically icing on the cake,” he said.
Listen to the Iowa Senate debate:
Speaker of the Iowa House Pat Grassley, R-New Hartford, praised the House’s role in ensuring the Legislature could deliver tax relief for Iowans while maintaining the responsible, conservative budgeting principles.
“Because of the disciplined budgeting practices of Iowa House Republicans over the last decade, Iowa is in a strong fiscal position to further reduce the tax burden on Iowans,” he said. “Our responsible approach to the state budget is part of why Iowans elected us to a 59-seat majority, and we kept that promise as we worked on this legislation. I’m proud of the role House Republicans played in making this bill the best possible outcome for Iowans.”
State Rep. Timi Brown-Powers, D-Waterloo, expressed concern about the state’s ability to fund mental health during the House debate.
“Although I have a few concerns, the state’s track record for being a partnership of paying things is not always great. Look at how we kind of fluctuate education. We can’t do that to mental health. Because those providers can’t sustain the services for the people in Iowa by doing that,” she said.
Brown-Powers said that funding has to remain constant, or else the mental health care system in the state will have problems. She also expressed concern about removing the property tax backfill.
“It speaks on the state’s behalf of being a good partner. So I think it looks really good right now. My concern is what will it look like in a year? What will it look like in two years? By taking the backfill, I’m talking to my cities, and they’re saying we’re going to lower taxes in one section, but city taxes, our property taxes are going to go up in Black Hawk County,” she stated.
State Rep. Charles Isenhart, D-Dubuque, complained that House Republicans didn’t do enough to garner bipartisan support and accept Democratic amendments. He said the bill wasn’t “ready for primetime.”
State Rep. Jon Jacobsen, R-Council Bluffs, pointed out that the inheritance tax phase-out had overwhelming bipartisan support.
“The inheritance tax punishes everybody. In some ways, it’s a regressive tax against middle-class and lower-income people,” he said. Jacobsen discussed how money is taxed after it is earned and taxed again when purchasing property. He then pointed out that the government wants another cut after someone dies.
“We are making that right by essentially restoring the kindest cut of all. And I would just say that we have dared to repair Iowa’s unfair error of taxing the air, and I’m really proud of the bipartisan support,” Jacobsen added.
State Rep. Dustin Hite, R-New Sharon, the bill’s manager, pointed out other bipartisan priorities within Senate File 619 during his closing comments.
“Increasing the child tax credit, the child care tax credit for families. Childcare has been a priority of this House. That’s been a bipartisan priority of this House. This bill addresses that. This bill exempts COVID-19 grants and PPP loans that were forgiven from income tax. That’s a priority for this House that we started last year,” he said.
Hite also said telehealth parity for mental health services, sales tax exemptions for food banks, and increasing tax credits for firefighters and EMS providers were bipartisan priorities included in the legislation.
“One thing I know that a lot of us who live in rural Iowa have heard from many of our landowners is to for the state of Iowa to take over some of that mental health funding,” he said. “That right there is something that I think we can all go home with and say this is something we’ve done for you. We’ve eliminated that burden on the Iowa property taxpayers.”
Hite said the only people who have expressed concern about the backfill are city and county government officials, not taxpayers, but the other items offered in the bill are things he said taxpayers want.
“This is an easy vote for me. I’m going to side with the Iowa taxpayer,” Hite said before calling for a vote.
Listen to the Iowa House debate:
Several organizations applauded the passage of the bill.
“The strength of Iowa’s economy is no accident. It’s the result of legislators stepping up in recent years to create a pro-growth environment by restraining the growth of unnecessary regulations and creating real opportunities in communities from river to river. Accelerating the adoption of 2018 income tax cuts, delivering new relief to property taxpayers, and phasing out the remnant of our state’s inheritance tax represents one of the best ways to ensure an even better tomorrow for all Iowans,” Drew Klein, Iowa state director for Americans for Prosperity, said in a released statement.
In an email to supporters, Iowans for Tax Relief lauded the bill but said their work is still not done.
“This is a significant bill and was a heavy lift for legislators. However, tax relief isn’t done. These improvements simplify Iowa’s tax system and set the foundation for continued tax reform. Iowans deserve lower taxes, less government spending, and fewer regulations,” they wrote.
Matt Everson, state director for National Federation for Independent Businesses, said Senate File 619 was a “big step forward.”
“This move is a big step forward to lowering high taxes here in Iowa,” he said in a released statement. “Iowa is one of the highest taxed states in the country, but it is also a great place to live and raise a family. While other states struggle to recover from the pandemic, Iowa is on the right path. Thanks to tax reforms like this, Iowa small business owners will be able to keep more of their hard-earned money which they can use to create jobs and employ more Iowans.”