IA Senate Panel Votes to Abolish State Income Tax
Friday, March 17, 2023
The Iowa Legislature's powerful Ways and Means Committee has advanced a measure to eliminate the state income tax. The move is the latest in a series of votes to reduce taxes in Iowa.
Senate Study Bill 1126 would lower Iowa's income-tax rate to flat 2.5% in five years.
Then in 2030, the income tax would be eliminated completely. This comes just after Iowa passed a 3.9% flat tax last year.
Executive Director of nonprofit, nonpartisan Common Good Iowa Anne Discher said - given that the state income tax accounts for 50% of the Iowa's budget - eliminating it would decimate crucial public services.
"State aid to public schools is 43% of our state budget," said Discher. "We could entirely eliminate state aid for our entire public school system and it wouldn't be enough to cover the kind of income tax cuts that we're talking about. So, the kinds of service cuts really would be draconian."
Republicans have said this bill, and the flat tax signed into law last year, are designed to give Iowans broad tax relief and also make the state attractive to businesses that may be considering locating in Iowa.
Discher pointed out that Iowa is already facing a revenue shortfall due to last year's tax cut.
She added that eliminating the income tax revenue would affect mental health, safety and other social service programs in Iowa. But she warned that it could have other consequences, too.
"It is certainly a shot across the bow against racial equity, as well," said Discher. "We are further advantaging the wealthiest Iowans - further advantaging, as a group, white Iowans. Iowans of color are over-represented at the lower end of the income distribution, because of longstanding discrimination in housing, education and employment."
The bill moves next to the full Senate.
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