Gov. Kim Reynolds' proposal to create a 4% individual income flat tax was formally introduced in the Iowa House and Senate today, beginning the process of debate on a measure that the governor and some business leaders say if enacted will help the state address its workforce shortage.

House Study Bill 551 and Senate Study Bill 3044, which were introduced in each chamber's Ways and Means Committee, also include reforming the state’s corporate tax structure. The bills have been assigned to Ways and Means subcommittees in each chamber but no date has been set for those groups to take up the measures.

Reynolds made the move to a flat individual income tax a priority in her Condition of the State address on Jan. 11, saying it would put more money in the hands of Iowans to spend on Main Street and less spent by bureaucrats in Des Moines.

According to her plan, the flat tax would be phased in over four years beginning in 2023 and would build on tax reforms that were approved in 2018, which lowered the individual income tax rate from around 9% to about 6.5% in 2023.

Tax groups have said lowering the income tax rate and going to a flat rate would not only attract more people to Iowa, but also lead to greater business growth and development.

The bills also would eliminate taxes on retirement income by 2023, and exempt net capital gains on sales of employee-owned stock.

There is also a provision that would reform the state’s corporate tax structure.

According to the measures, every year that net corporate income tax receipts exceed $700 million, the surplus would be used to buy down the current top rate of 9.8%. The state’s Department of Revenue would determine new top corporate rates each year until it reaches 5.5%. It prohibits the rate from being adjusted below 5.5%, but once that level is reached it would be capped and become a flat rate, the bills state.

Before the start of the session, lawmakers said that while they were open to discussions about the corporate rate, they would focus on continuing to lower the individual income tax rate as a means of addressing the state’s workforce issues.

Photo by Kelsey Kremer, Des Moines Register.