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All ideas, including elimination of income tax, on table for future tax reductions, Reynolds says

All ideas, including elimination of income tax, on table for future tax reductions, Reynolds says

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Iowa Governor Tax Cuts

Iowa Gov. Kim Reynolds talks to the media after signing a sweeping tax cut package that cuts income and property taxes, eliminates the inheritance tax and realigns the state's mental health funding system on June 16, 2021, at YSS, in Ames, Iowa.

AMES — All ideas are on the table when it comes to future state tax reductions, including the elimination of the state’s income tax that is responsible for nearly half of all state revenue, Gov. Kim Reynolds said Wednesday.

Reynolds made the comments Wednesday moments after signing into law a package of state tax reductions and reforms, including a reduction in the state income tax rate from 8.5% to 6.5%.

As she signed that legislation into law during a public ceremony, Reynolds pledged to work on more state tax reductions in the coming year. After the ceremony, she expanded on that pledge while fielding questions from reporters.

“We’re going to spend the interim (between this year’s legislative session and next year’s) looking at it,” Reynolds said. “States across the country are continuing to bring (their income tax) down. And if we’re going to remain competitive, we’re going to have to continue to take a look at that.”

Reynolds was asked if that discussion could include a proposal to eliminate Iowa’s state income tax.

“That’s where (other states are) going. And if you listen to governors, that’s kind of their goal in several states,” Reynolds said. “And taxpayers win when you’ve got governors that are competing to create an environment that not only helps Iowans and Iowa families keep more of their money, but also creates an environment where businesses want to invest and grow, hire Iowans and really drive the quality of life that we want all Iowans to be able to enjoy.”

Iowa’s state income tax collections produced nearly $4 billion — almost half of all state revenue — in the state budget year that ended in June of 2020, according to the state’s nonpartisan fiscal analysis agency.

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Asked if the state budget could handle future revenue reductions like that while sustaining state-funded services, Reynolds said she and her staff analyze state revenue projections whenever they consider changes to state tax policy.

“We’ll watch all of that, because as I said we have to make sure we can maintain our priorities,” Reynolds said. “We have to be conscientious of all of that when we take a look at bringing (taxes) down. So we’ll just say all of those things are on the table as we continue to move forward and see what the art of the possible is.”

The legislation that Reynolds signed into law Wednesday, Senate File 619, includes myriad tax-related provisions. The new law:

  • Removes previously enacted safeguards, which in effect will begin income tax reductions in 2023.
  • Transitions the funding of mental health care services from local property taxes to the state’s general fund.
  • Phases out state funding designed to aid local governments that lost local property tax revenue as a result of previous commercial property tax reductions.
  • Doubles the income threshold for a state child care tax credit.
  • Phases out the state inheritance tax.
  • Requires that mental health care providers be reimbursed for virtual services at the same rate as in-person services.
  • Increases tax credits for workforce housing and beginning farmers.
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