DES MOINES, Iowa (AP) — Republican Gov. Kim Reynolds on Tuesday released a plan that would reduce individual income taxes in Iowa by $1.7 billion by 2023, though it’s unclear if members of her party are completely on board as they seek additional changes and other cuts.
The proposal comes as the GOP-controlled Legislature considers mid-year spending cuts to agencies and higher education amid lower-than-expected revenue to the state’s roughly $7.2 billion state budget. The governor announced her plan via email, saying it will help a wide range of people.
“My plan combines meaningful tax relief while protecting our budget priorities,” Reynolds said. “We’ve prioritized tax relief for middle class taxpayers, small business owners, teachers and working families across the state. We’re long past due for real tax reform that simplifies and updates our system while allowing Iowans to keep more of their hard-earned money in their communities.”
The proposal would lower tax rates over several years and reduce tax brackets from nine to eight, according to a 107-page bill. It would also phase out a system, known as federal deductibility, which has allowed Iowans to deduct what they pay in federal income taxes from state tax liability.
Reynolds’ staff said extra state revenue from the federal tax overhaul will partially offset the cuts. Other changes to the state’s sales and use tax, including expanding some online sales, will play a role. Preliminary data shows the state will need to address shortfalls in future years.
It’s unclear when the measure will move through the chambers, though some GOP lawmakers offered initial support.
“House Republicans are ready to work with Governor Reynolds to reform Iowa’s outdated and complex tax code,” said House Speaker Linda Upmeyer. “We look forward to making it simpler, fairer, and more competitive for all Iowans.”
Other Republicans indicated the plan will go through revisions. Sen. Randy Feenstra, of Hull, chairs a powerful tax-writing committee in the Senate. He called Reynolds’ bill a “wonderful start” and indicated he would introduce legislation with additional changes, including corporate tax cuts.
“It’s part of a framework that we can use to continue to build out,” he said of the governor’s plan.
Democrats, who have no legislative power this session, said they’re reviewing the bill. Rep. Dave Jacoby, a Coralville Democrat who is a ranking member on the tax-writing committee in the House, offered skepticism via a statement. He compared the situation to Kansas, a state where Republicans cut taxes a few years ago. Republicans there reversed some of those cuts last year after lagging state revenue.
“We can’t afford another tax plan that will make the state’s budget crisis even worse,” Jacoby warned.
Reynolds’ staff said the proposal includes revenue targets that will act as a “safeguard” if there’s a downturn in the economy. Another provision would accelerate tax cuts if there’s significant economic growth. An analysis from a key nonpartisan agency isn’t available yet.
