(The Center Square) – Iowa taxpayers will pay a 3.8% flat income tax rate a year earlier than expected as part of a tax bill passed by lawmakers during the 2024 legislative session.
The flat tax was scheduled to go into effect in the 2026 tax year as part of a package passed by the Iowa Legislature in 2022.
The bill was opposed by Democrats who said in late Friday night debates that 500,000 Iowans who are required to pay state income tax are not considered.
“Everyone deserves tax relief,” said Rep. David Jacoby, D-Coralville. “Everyone deserves to know where there taxes are going. But under this bill, we continue the same path as we did before, leaving behind half a million Iowans.”
Senate Majority Leader Jack Whitver said the flat tax will save Iowa families an average of $800 annually.
“Total money remaining in the hands of working families is $1.3 billion,” Whitver said as the session closed. “These savings will continue year after year, permanently ensuring Iowans keep more of what they earn. A flat, simple rate provides incentives to work hard and build a life in the greatest state in the country.”
A separate resolution would codify the flat income tax rate into the state’s constitution. Senate Joint Resolution 2004 must be passed by lawmakers again next year before it could go before voters.
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. Illinois voters rejected an amendment in 2020 that would have scrapped the constitutionally protected flat tax rate for a progressive income tax.
Increasing the flat income tax rate would be more difficult for future legislatures if voters approve a constitutional ballot amendment proposed by lawmakers. House Joint Resolution 2006 would require two-thirds of the legislature to approve a tax increase..
The resolution must be approved by next year’s legislature before appearing on the ballot in 2025.
The legislature approved almost $9 billion in appropriations that include money to raise the starting teacher salary to $50,000 a year.
“Iowa is a state that values education, rewards hard work, and encourages strong families,” Gov. Kim Reynolds said after lawmakers said sine die early Saturday morning. “A place where government is driven by a sense of responsibility to the people it serves. I’m proud of what we accomplished this year and I look forward to continuing to build upon our strong foundation, ensuring prosperity and stability for every Iowan.”
