DES MOINES (AP) — Iowa Gov. Kim Reynolds proposed Tuesday night that Iowa cut taxes by nearly $2 billion by moving to a 4% flat income tax phased in over four years and repealing all state taxes on retirement income beginning next year.
The plan would allow retirees 55 and older to exempt income from individual retirement accounts, pensions and annuities and would include farmers who can exempt income earned from cash rent on farmland or capital gains on sale of their farmland.
Reynolds made the proposal in the annual Condition of the State message to the Legislature, which convened its session Monday.
The flat tax proposal would reduce state revenue by an estimated $1.58 billion by tax year 2026 when it would be fully implemented.
“The cuts will occur gradually over the next four years so that we protect priorities like education and public safety. But in the first year alone, taxpayers will save almost $500 million. And by 2026, when the bill is fully implemented, an average Iowa family will pay over $1,300 less in taxes, which is on top of their $1,000 tax cut from the 2018 bill,” she said.
The retirement tax relief would reduce state revenue by an estimated $400 million in 2023, the first year she proposes it to be effective.
Reynolds plans to leave $2 billion in the state’s taxpayer relief fund to be tapped if state revenue growth falls below a projection of 4% on average per year. State spending growth has typically been about 2% in recent years and Reynolds budget team expects the difference between revenue growth and spending growth to be enough to pay for the changes.
Reynolds also proposed other significant policy changes, including:
— Reduces unemployment benefits from 26 weeks to 16 weeks and makes it more difficult for unemployed workers to reject job offers. She also proposes creating a division within Iowa Workforce Development that focuses on helping unemployed workers find jobs.
— Launching a national recruitment campaign for law enforcement and corrections officers that includes $1,000 retention bonuses, and offering one-time $1,000 retention bonus for teachers who promise to remain in the state for another year. with money coming from federal American Rescue Plan funds.
— Capping damages that can be sought in lawsuits for trucking accidents and in medical malpractice lawsuits.
— Instituting statewide building codes, which would apply to commercial buildings including daycare centers.
— Requiring school districts to publish class materials online and provide a list of books available in school libraries with a process for anyone to challenge a book.
— Requiring students to pass a citizenship test before graduating from high school.
— Requiring all gasoline retailers with compatible gas pumps and lines to offer E15 by 2026. Any newly installed equipment must be E85 compliant for gasoline or B20 for biofuel.
— Allowing middle- and low-income families and students with an individualized educational plan to take 70% of their state allocated per-pupil funding — about $5,300 per student — to move their child to the education system of their choice.