(The Center Square) – Iowa voters could get a chance to decide if they want a flat income tax rate embedded in the state’s constitution.
A Ways and Means subcommittee signed off on Senate Study Bill 3189 on Wednesday. The resolution will go before next year’s legislature for adoption if approved.
A tax plan passed by the Legislature in 2022 and signed into law by Gov. Kim Reynolds gradually lowers the state’s tax rate before implementing a 3.6% flat tax in 2026.
Mike Owen of Common Good Iowa said the flat tax is unfair to lower-income families.
“Three percent of the income of a family making $40,000 a year is much more meaningful to that family than 3% of a family with a household budget of $140,000 or $240,000 or a million,” Owen said.
The flat tax rate would also reduce the amount of resources the state has to provide services, Owen said. The Sierra Club, the Iowa Federation of Labor AFL-CIO and the Iowa Catholic Conference oppose the bill.
Andy Conlin with Iowans for Tax Relief said the flat tax is simple and pro-growth.
“Your high income earners are going to pay more under a flat tax by the function of the fact that they are high earners,” Conlin said.
Proponents of a flat tax also note that many small businesses file as “pass through” entities that pay state individual income taxes. Flattening income taxes for those entities can spur economic growth.
Iowa Association of Business and Industry, the Iowa Bankers Association and Americans For Prosperity support the flat tax.
Sen. Cindy Winckler, D-Davenport, said she would not support the bill as the state is still moving toward the flat tax passed in 2022.
“We have yet to see what they impact is and we look at what the fiscal not was of that bill we saw that revenue would be decreased until ’26 with the implementation of the flat tax,” Winckler said.
The bill would also remove the Legislature’s flexibility to identify the population’s needs, she said.
“I think that we have to be very careful in putting something in our constitution,” Winckler said. “Tying the hands of the Legislature in regards to taxation is not the way to make decisions.”
Twelve states have a flat income tax rate, according to the Tax Foundation. Four states-Colorado, Illinois, Michigan and Pennsylvania- include it in their state constitution, according to Winckler.
The bill now goes to the Senate Ways and Means Committee.
