Iowa Governor Kim Reynolds signed legislation today that provides significant tax relief for residents of the Hawkeye State. The new law moves Iowa from a 5.7% top income tax rate in 2024 to a flat rate of 3.8 percent starting in 2025—saving taxpayers more than $1 billion over the next six years. The new reform accelerates the speed at which this flat tax rate was set to go into effect (legislation from 2022 scheduled a flat tax rate of 3.9% to be fully phased in by 2026).
With this new flat rate of 3.8%, Iowa now has the sixth lowest income tax rate in the country.
In addition to lowering the income tax, Iowa also passed measures that ensure this reform stays on the books in future years. First, lawmakers passed a proposed constitutional amendment that requires a 2/3 majority of the Legislature to raise the income tax. Second, in another constitutional amendment, the flat tax would be protected—ensuring Iowa does not move back to a progressive tax structure. If both measures pass in Iowa’s 2025 legislative session, they will be sent to the ballot in November 2026 where voters will decide their fate.
Iowans for Tax Relief Foundation, a nonprofit policy organization in Des Moines and member of State Policy Network, played a significant role in advancing these new reforms. For years, the organization has produced timely research on the benefits of lowering taxes and conservative budgeting. Through timely op-eds, marketing efforts, and outreach to lawmakers and the public, the Foundation made the case for lowering Iowa’s tax rates, which in 2018 were among the highest in the nation.
Before Iowa’s legislative session started this year, the Foundation released a report that outlined how lawmakers can lower the state’s income tax rate and eventually eliminate it all together. The Foundation shared this report with state leaders, including Iowa Governor Kim Reynolds. In late April 2024, lawmakers heeded the advice of the Foundation, accelerating the tax reform package to lower the income tax rate to a flat 3.8%.
At a time when many American families are struggling to afford basic goods, lowering the income tax is a way that states can help alleviate this hardship. Lowering the income tax allows hardworking Americans to keep more of their paycheck—which in turn allows them to better cope with the high cost of groceries, gas, electricity bills, and more. John Hendrickson, Policy Director at Iowans for Tax Relief Foundation, added:
“Iowa’s 3.8 percent flat tax will provide substantial tax relief for Iowans. It is estimated that on average Iowa taxpayers will save at least $800 on their state taxes. Iowans are struggling with inflation and this tax relief will allow individuals to keep more of their hard-earned dollars. A low flat tax will also make Iowa’s economy more competitive and provide needed tax relief and incentive for small businesses, which are the backbone of the economy.”
Reducing the income tax is a policy that many states have implemented over the last few years. In fact, since 2020, more than half of states have lowered their income tax rate. And more states are poised to lower their rates this year.
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Iowans for Tax Relief Foundation and Americans for Tax Reform in the Des Moines Register
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The Income Tax: Explained
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