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Iowa House passes GOP drafted 4% flat tax plan

February 16, 2022 GMT

DES MOINES, Iowa (AP) — The Iowa House passed a tax cut proposal Wednesday that would move the state to a 4% flat income tax over four years and repeal all state taxes on retirement income beginning next year.

The plan is similar to one backed by Gov. Kim Reynolds except it does not include her proposed corporate income tax cut.

Democrats attempted to amend the bill to increase benefits to Iowans with lower to middle class incomes or provide additional money for child care, but Republicans defeated their amendments.

The bill passed 61 to 37, with three Democrats joining with Republicans.

The plan relies on annual revenue increases of 3% to 3.5% a year and transfers $829 million from a taxpayer relief fund into the general fund. Still, it drains $1.6 billion from state revenue by the sixth year, about 15% of the state budget. Some tax policy analysts predict the tax plan would ultimately result in program cuts or increases in other taxes, such as property taxes.

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House Republican Leader Matt Windschitl said the plan ensures the state will have adequate revenue to fund the priorities of Iowans.

Democratic Rep. Dave Jacoby called it Republican socialism that returns the largest share of the tax savings to the rich and ultrarich while providing very little “to the people who really pay the bills in this state.”

Senate Republicans have their own plan, which gradually lowers tax rates over five years to get to a 3.6% rate in 2027. After that the plan uses the taxpayer relief fund to further lower the tax rates each year until the individual income tax rate is zero.

About half of Iowa’s general fund revenue comes from personal income tax.