Expert says Republican-proposed tax cuts could lower many Iowans’ tax bills

Experts say Republican proposed tax cuts would benefit many Iowans
Published: Feb. 17, 2022 at 7:34 PM CST
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CEDAR RAPIDS, Iowa (KCRG) - On Wednesday, the Iowa House of Representatives approved their tax cut bill with a 61-37 vote. It is now in the Senate for consideration.

Right now, Iowa has a graduated income tax rate, meaning the more money you make the higher rate you are taxed at. Someone who makes $35,000/year is taxed at 6.25%. If you make $75,420 annually, it is more than 8.5%.

Iowa Republicans are proposing a flat tax rate of 4%. Neighboring Illinois has a flat income tax rate of 4.95%.

Many believe only the wealthiest Iowans would see the benefits of the Republican proposed tax cuts, a key point made by Democrats in opposition in the statehouse. But, under the current income tax brackets, anyone who makes more than $15,084 is currently being taxed at more than 4%.

“People with about a middle-range of income, say $100,000, for a couple would see their tax bill go down fairly substantially. Right now, they would pay probably about $6,500 a year in Iowa taxes in the future that will come down if it’s a flat rate to about 4%, to about $4,000,” Quinn Arnold, financial advisor and owner of Arnold & Mote Wealth Management, said. “You would save you know, almost half of your tax bill, for that income range,”.

Arnold said while those who make more money will see higher tax breaks most Iowans can expect more of their wages to stay in their pockets.

“Almost any family would see some reduction in taxes,” Arnold said.

The bill that was passed by the House gradually decreases income tax till 2026 when it will be set at 4%. The more timely impacts of the tax cut plan could be felt as soon as 2023 with the intent to cut retirement taxes entirely.

“If this goes through all of that retirement income, some money coming in from things like social security, IRA, or 401k, distributions or annuity payments, will all be tax-free for Iowans,” Arnold said.

The AARP of Iowa said they are advocating for a cut to retirement taxes in the state.

“The money that you put into, as you work, to expect more to be able to hold on to that money as you retire. So it’s so important, that’s really the broader bucket of financial security that we work on,” Anthony Carroll, state advocacy manager for AARP of Iowa, said.

During the House of Representatives debate Democrats offered 6 amendments, but all of those preserved the proposed retirement tax appeal.

“That’s actually a good sign. We think it’s a good thing parties on both sides working in support of that piece,” Carroll said.

The tax cut proposals from House, Senate, and governor, all vary, but they all include cutting retirement taxes entirely.

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