In 2018, the Iowa legislature gave taxpayers the first significant income tax relief legislation in 20 years. However, the relief will be phased in over multiple years, and the income tax rate reduction is subject to a revenue trigger. This delay is hurting Iowa. The Tax Foundation recently released its 2020 State Business Tax Climate Index and ranked Iowa in the top 10 worst states for business tax climates (42 out of 50). This is evidence Iowa’s tax code still needs to improve.
Our state is competing with other states for jobs and people and cannot afford to wait for more tax relief. Elected officials from both parties insist the most pressing immediate economic challenge confronting Iowa is the need for people, that is, workers who can fill jobs. Iowa is not just competing with our neighboring states, but we are in competition with all 50 states for people and businesses. Our high income, sales, and property taxes are a deterrent to economic growth and competitiveness.
The 2018 tax law is a step in the right direction, but even after the rate reductions are fully implemented, Iowa will still have a high corporate tax rate of 9.8 percent and a top income tax rate of 6.5 percent. State tax reform is never easy, primarily because it requires greater discipline in government spending. Iowa policymakers need to ask themselves whether economic growth can be better achieved through lower tax rates or taxpayer-subsidized economic development programs?
Our state’s low ranking from the Tax Foundation 2020 Business Tax Climate Index indicates further tax rate reduction must be a priority. High tax rates are truly an existential threat to Iowa’s economic well-being.
Read more about how tax rates matter here.