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Modernize Iowa’s tax system to enhance our competitiveness

When the U.S. Census Bureau released its 2020 data, it confirmed that Iowa’s population growth has been anemic. Our overall population increased by 4.7%, but the report acknowledged that most of these gains occurred in a few metros and suburbs, while 68 of Iowa’s 99 counties lost people. In fact, two-thirds of our counties hit their peak population in the 1950s or earlier. To add to our population issues, we are facing the most acute worker shortage in a generation. Eventually, if Iowa employers can’t find qualified workers here, they will relocate elsewhere. That’s a sobering fact for those of us that enjoy calling Iowa home.

The Iowa Business Council focuses on efforts that help attract, retain and re-engage a talented workforce. We know addressing important issues such as rural broadband, affordable child care and workforce housing will play a critical role in making our state a better place to live and work. However, there is one major policy initiative that has the potential to accelerate Iowa’s path to a much stronger future. That opportunity is tax reform.

Iowa currently ranks 38th nationally in overall corporate and individual tax climates. To be more competitive, lawmakers must focus on providing a simple and transparent tax structure that will grow Iowa’s economy. Gov. Kim Reynolds’ proposed flat tax on individual income would make Iowa one of the 15 most competitive states to live and work in the country. Under the plan, individual rates would start gradually reducing in 2023, culminating in a 4% flat tax for all by 2026.

On the corporate side, the governor’s plan provides a pathway to an eventual 5.5% flat tax while codifying specific revenue performance standards and guardrails before reductions can occur. For every fiscal year in which net corporate income tax receipts exceed $700 million, the surplus will be used to lower the top line tax rate for the following year. This is a prudent approach to begin addressing one of Iowa’s most distressing economic realities. From a corporate rate perspective, only New Jersey and Pennsylvania charge more than we do. This is a major barrier to entry for prospective businesses that might otherwise consider locating in our state and for current Iowa businesses looking to expand.

Taken together, this tax reform proposal is great news for employees and job creators alike. Businesses of all sizes and all individuals will benefit from the new flat tax policies. If enacted, good news like that doesn’t stay quiet for long. It will be a major recruitment tool for attracting businesses to Iowa, while ensuring we retain the companies that have kept our communities thriving.

Modernizing our tax system will not only save current residents hard-earned money, it will make Iowa a more attractive place to live and do business. Our state is in a strong economic position. Iowa has a $1 billion budget surplus and $1.2 billion in its taxpayer trust fund. The time is right to advance tax cuts for all Iowans.

This article was originally posted on Modernize Iowa’s tax system to enhance our competitiveness

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