{"id":10889,"date":"2020-10-29T11:48:18","date_gmt":"2020-10-29T16:48:18","guid":{"rendered":"https:\/\/itrfoundation.org\/new\/?p=10889"},"modified":"2023-01-18T10:26:25","modified_gmt":"2023-01-18T16:26:25","slug":"the-importance-of-iowas-tax-climate","status":"publish","type":"post","link":"https:\/\/itrfoundation.org\/the-importance-of-iowas-tax-climate\/","title":{"rendered":"The Importance of Iowa\u2019s Tax Climate"},"content":{"rendered":"
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Tax rates matter. They determine how much income an individual or business must pay to the government. For every dollar taken away by taxes,<\/strong> it is one less dollar an individual, family, or business has to save, spend, or invest. Tax rates also play a big role in how competitive a state economy is in relation to other states. Higher tax rates not only penalize hard working individuals, families, and businesses, but they also deter economic growth and make a state less competitive.<\/p>\n

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The Tax Foundation\u2019s 2021 Business Tax Climate Index<\/em><\/a> provides a measure of how state tax climates compare. Iowa ranks<\/a> 40 out of 50, which is a slight improvement from last year when the state ranked 45th<\/sup> for worst business tax climate. Regionally, Iowa\u2019s tax climate is worse than all neighboring<\/a> states with the exception of Minnesota. South Dakota, a no income tax state, received the second highest ranking in the country.<\/p>\n

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Iowa ranks high on every tax category<\/a> except for the sales tax.<\/p>\n

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High tax rates remain a concern for both individuals and businesses in Iowa. However, Governor Kim Reynolds and Republicans in the legislature have made progress on recent tax reform. In 2018, the legislature passed a tax reform law that lowered both individual and corporate income tax rates and broadened the sales tax base. The 2018 tax reform law took a phased-in approach and it will take several years to fully implement.<\/p>\n

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At 12 percent Iowa has the highest top corporate tax rate. In 2021, Iowa\u2019s corporate tax rate is scheduled to fall from 12 percent to 9.8 percent. In 2023, if revenue triggers are met, Iowa\u2019s top income tax rate is scheduled to fall from 8.53 percent to 6.5 percent. The Tax Foundation credits<\/a> recent tax reforms by the legislature which helped improve Iowa\u2019s ranking.<\/p>\n

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In terms of property tax relief, the legislature passed a law in 2019 that created more transparency and accountability within the local government budget process. This law requires local governments such as counties and cities (school districts were not included) to hold a public hearing if the proposed budget increases more than two percent above the previous year. It also requires a supermajority vote for the increase to be enacted. This two percent \u201csoft cap\u201d is meant to control the growth of property taxes.<\/p>\n

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Prior to the COVID-19 pandemic, Governor Kim Reynolds proposed the Invest in Iowa Act, which called for further tax reform. A main focus of the Invest in Iowa Act called<\/a> for a 10 percent income tax reduction in 2021 with the goal of lowering the top rate to 5.5 percent by 2023. The income tax reductions would be financed in part with a one cent increase in the sales tax.<\/p>\n

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However, due to the COVID-19 pandemic, the Invest in Iowa Act was tabled. Recently Governor Reynolds stated<\/a> that she may push for this proposal during the 2021 legislative session. The Governor understands that Iowa needs to become more economically competitive.<\/p>\n

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\u201cI think we have an opportunity to just say to people on the East and West coasts, and honestly in Minnesota and Missouri, \u201c\u201cHey, things are going well here, there\u2019s a lot of opportunity, we have a great quality of life and all components of that really helped build that out,\u201d\u201d stated<\/a> Governor Reynolds.<\/p>\n

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\u201cThe evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth,\u201d wrote<\/a> Jared Walczak and Janelle Cammenga, authors of the 2021 Business Tax Climate Index<\/em>.<\/p>\n

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\u201cIt is important to remember that even in our global economy, states\u2019 stiffest competition often comes from other states,\u201d noted<\/a> Walczak and Cammenga.<\/p>\n

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How can Iowa continue to lower tax rates and ensure that the state is competitive, and taxpayers keep more of their hard-earned income?<\/p>\n

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