Study: Income tax cuts will save $1.85 billion

A study from an Iowa research institute found that the latest individual income tax cuts will result in $1.85 billion in tax savings for income tax payers in the next decade.

The Common Sense Institute Iowa, the Iowa chapter of a think tank with chapters in Colorado, Washington and Arizona focused on the “future of free enterprise,” released the study Monday.

It was authored by the institute’s Director of Policy and Research Ben Murrey — a former campaign and legislative staffer for U.S. Sen. Ted Cruz, R-Texas.

The research looked at the impact of Senate File 2442, a new law from the 2024 legislative session, that will lower Iowa’s individual income tax rate to a 3.9% single rate by 2026.

This year’s individual income tax cuts will speed up the implementation of a 2022 measure, reducing the state’s individual income tax rate to a 3.9% single rate by 2026.

In addition to the reduced taxes, the study found that the income tax cuts will result in other economic growth for the state, including a $3 billion increase in after-tax income and $1.72 billion growth in Iowa’s gross domestic product.

These figures were calculated using information from the state Legislative Services Agency analysis of the bill, Revenue Estimating Conference projections as well as modeling using REMI Tax-PI, a commercial tool analyzing dynamic macroeconomics and fiscal impacts of policies.

While the tax cut was praised by Republican lawmakers during the legislative session as providing taxpayers more than $1 billion in tax relief, members of the minority party expressed concerns that the cuts could put the state government in a difficult position for budgeting in future years.

The tax cut is paid for using excess tax revenue from this year’s budget as well as funding from the Taxpayer Relief Fund. In future years, if state revenues fall below the state’s spending for a fiscal year, part of funding the disparity would come from the Taxpayer Relief Fund until July 1, 2029.

Democrats argued that this system is unsustainable, as the relief fund is one-time money, and cannot be used indefinitely to make up for funding deficits — especially in the case of an economic recession.