Senate Republicans in the Iowa Legislature have introduced their own tax reform package, which establishes a lower flat individual income tax rate than was proposed by Gov. Kim Reynolds, and includes provisions to cut the corporate tax rate and eliminate taxes on retirement income. Senate Majority Leader Jack Whitver, R-Ankeny, said the bill is “complementary” to the bill introduced by Reynolds and includes many of the same ideas and goals. “When fully implemented, this bill will make Iowa’s individual income tax rate the fourth-lowest in the country instead of the eighth-highest as it is today.” The bill would establish a flat 3.6% individual income tax with a mechanism that would lead to the eventual elimination of the individual income tax. Reynolds called for a flat tax of 4% to be phased in over four years. Other provisions in the Republican tax reform bill include:

• Cutting the corporate rate to a flat 7.8%, reduced from 9.8% today by reforming credits and exemptions
• Fully eliminate all taxes on retirement income
• Expand military pay exemption to National Guard members
• Providing farmers a first-time pension exemption by exempting income from either cash rent or farm crop shares
• Restructuring the Taxpayer Relief Fund by turning it into the Income Tax Elimination Fund, directing the fund to be used to automatically reduce future individual income tax rates and ultimately eliminate the personal income tax in Iowa.

Sen. Dan Dawson, R-Council Bluffs, and chair of the Senate Ways and Means Committee, said the bill would modernize the state’s tax code and reward the hard work of Iowans and attract more businesses to Iowa. Some lawmakers and business leaders have said revamping the state’s tax system is needed to make Iowa competitive and to address the state’s workforce shortage. Democrats have said reducing the income tax would place a greater burden on lower and moderate-income taxpayers.