DES MOINES, Iowa – The Iowa House of Representatives on Wednesday afternoon voted 61 to 37 to pass HF 2137, a bill that offers several tax reforms including the creation of a four percent flat tax by 2026.
The bill phases in the flat tax over the next four years. The bill also exempts retirement income from income taxes and includes a new income exemption for retired farmers.
The bill also phases in over a three-year period the complete exclusion from the individual income tax the net capital gain from the sale of capital stock by an owner-operator on one qualified corporation provided certain requirements offered in the bill are met.
“Thanks to this bill, every Iowan will keep more of their hard-earned money in their pocket,” State Rep. Lee Hein, R-Monticello, who managed the bill during floor debate, said. “Right now, Iowa is taking in more money than it needs to run state government. The state has over-collected from Iowa taxpayers and they deserve that money back.”
Iowa House Democrats offered six amendments to the bill that lost and one amendment that was withdrawn.
Iowa House Minority Leader Jennifer Konfrst, D-Windsor Heights, blasted the bill.
“This is a Republican tax proposal and this Republican tax proposal helps the wealthy, helps them first, helps them most, helps them best,” she said.
State Rep. Monica Kurth, D-Davenport, said the bill ignores lower-income Iowans.
“Nothing in this bill shows concern for our lowest income,” she said.
After the vote, Iowa House Speaker Pat Grassley, R-New Hartford, praised the bill, particularly the exemption for retirement income.
“We see many Iowans retire or change their primary residence to states that do not tax retirement income,” said Grassley. “If we can keep those folks in Iowa once they retire, that means they continue to contribute to the economy here in Iowa and to not-for-profits and to their local community. This tax cut plan is simple, sustainable, and cuts taxes for all Iowans. I’m happy to see it get one step closer to the Governor’s desk so we can return this overcollection to the taxpayer.”
The vote was mostly along party-lines, but three Democrats, State Reps. Steven Hansen, D-Sioux City, Bruce Hunter, D-Des Moines, and Kenan Judge, D-Waukee, joined Republicans voting for the bill.
Groups opposed to the bill include Common Good Iowa, Iowa State Education Association, AFSCME Council 61, AFL-CIO of Iowa, Iowa Conference of the United Methodist Church, Interfaith Alliance of Iowa, Urban Education Network of Iowa, Rural School Advocates of Iowa, and Iowa Hunger Coalition,
Groups supporting the bill include the Iowa Bankers Association, Master Builders of Iowa, Iowans for Tax Relief, National Federation of Independent Business/Iowa, Iowa Credit Union League, Iowa Funeral Directors Association, Associated General Contractors of Iowa, MidAmerican Energy, Home Builders Association of Iowa, Dubuque Area Chamber of Commerce, Lennox International, Hy-Vee, and Americans for Prosperity.
There will have to be some compromise with Iowa Senate Republicans. Their tax reform bill, SF 2206, is more expansive as it addresses sales and use tax, exempts retirement income, cuts the top corporate rate to 7.8 percent by 2028, and creates a 3.6 percent flat individual income flat tax phased in over five years.