Week Seven Capitol Report

February 25, 2022

This week, the Iowa Legislature held fewer committee meetings, and hardly any subcommittee meetings, instead focusing of floor debate. In addition to various non-controversial bills and some more controversial bills, the legislature passed a tax reform compromise that was sent to the Governor Thursday night.

House File 2317 was originally the House tax plan and passed the House in its original form 61-38 last week. On Thursday, the Senate passed a strike-after amendment to the bill, making HF  2317 the agreed to compromise between the House, Senate, and Governor. The Senate passed the strike after amendment, S-5022 with a 30-18 vote, and the amended HF 2317 with a 32-16 vote. HF 2317 was sent back to the House where the amended language was agreed to with a 61-34 vote. While the bill did not pass unanimously in either chamber, a few members of the minority party in both chambers supported the agreement.

The compromise creates a flat 3.9% personal income tax, eliminates taxes on retirement income, removes capital gains taxes from ESOP holdings, provides tax relief for retired farmers, and reforms the corporate income tax by gradually lowering the rate to 5.5%. Changes were made to Research Activities Tax Credits to account for the lowered corporate rate, including reducing the refundability to 50% over 5 years.

The Governor issued the flowing statement in response t the tax reform bills passage:

“When I took office, Iowa had the sixth highest individual income tax rate in the nation at 8.98%. I believed Iowans deserved better. Since then, I’ve worked with the Legislature across multiple sessions to make transformative changes to our tax code, let Iowans keep more of their hard-earned money, and make our state more competitive. Today’s bipartisan, consensus bill shrinks individual income tax rates to a flat and fair 3.9%, the fourth lowest in the nation. It eliminates state income tax on retirement income, overhauls our corporate tax system, and accelerates the incredible momentum we’ve built since 2018.  

There’s never been a better time in Iowa for bold, sustainable tax reform. This bill rewards work, takes care of our farmers, and supports our retirees, all while protecting key state priorities. Iowans will reinvest these dollars in our economy, communities will prosper, and families will rest a little easier. Once again, we’re putting our faith in Iowans, and they won’t let us down.”

This week, Governor Reynolds was chosen to deliver the GOP response to President Biden’s State of the Union Address on March 1st.

With the tax reform bill done, the legislature is likely to adjourn earlier than planned this year, as members of both chambers prepare to start campaigning for reelection following redistricting. The filing period for candidates for statewide and legislative races opens Monday, February 28th and closes March 18th.

Next week will see more floor debate and some committee and possible subcommittee work as legislators prepare for the second funnel deadline. Bills must pass through their originating chamber and committee in the opposite chamber to remain eligible past the second funnel.