Iowa statehouse advances two plans to reduce income taxes.

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The Iowa Senate Ways and Means committee has advanced Gov. Kim Reynolds’ bill to lower the state’s income tax rate. The proposal aims to speed up and expand the tax cuts that were signed into law in 2022. Senate Study Bill 3038 would reduce Iowa’s current individual income tax rate of 5.7% to 3.65% in 2024, with a further reduction to 3.5% in 2025. Meanwhile, Senate Republican lawmakers are working on their own tax reform bill that not only cuts income taxes but also seeks to eliminate Iowa’s income tax entirely. Additionally, Senate Study Bill 3141 would bring the income tax rate down to 3.775% in 2026 and to 3.65% in 2027, using some of the $3.5 billion currently in the Taxpayer Relief Fund to ultimately eliminate Iowa’s income tax.

Despite these plans, Senate Minority Leader Pam Jochum criticized both proposals, stating that replacing the current fair tax system with sales tax to fund schools and public safety would disproportionately affect the working class and the working poor. However, Senate Republicans have clarified that they are not looking to raise the sales or property tax to fund state government. Instead, they aim to grow existing funds and use returns to reduce the tax rate, ensuring that Iowans do not experience a significant tax shift.

Overall, the proposed tax reform measures in Iowa aim to significantly reduce the state’s income tax rate and ultimately eliminate income tax. However, the plans have received criticism from some Democrats, who argue that the proposed changes could negatively impact the working class and working poor by shifting the tax burden onto them. Despite contentious debates, the hope is that advancing these bills through committee will provide a clearer understanding of their fiscal implications for both lawmakers and Iowans alike.

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