During the 2013 legislative session, Republicans in the Iowa House passed House File 478, a bill that flattens Iowa’s income tax to a single low rate of 4.5%. The bill would have provided Iowans with $1.85 billion in tax relief over the next 5 years. The bill however, was never brought to the Senate floor.
A similar bill was passed in North Carolina last month that completely reformed the state’s tax structure, which included a flat income tax. According to the Tax Foundation, North Carolina’s tax climate jumped from 44th place to 17th place, just by enacting tax reform. The Tax Foundation currently has Iowa ranked 46th out of the 50 states.
From the Tax Foundation
By Richard Morrison
In late July, North Carolina legislators passed major tax reform legislation which lowered individual and corporate income taxes, abolishes the estate tax, and modestly broadens the sales tax base.
The improvements in the state’s tax code will benefit individual taxpayers as well as business owners, and will make North Carolina a more attractive place for new investment. The simplification of gross receipts taxes and elimination of preferential rates for particular industries will also be a bonus for the state’s economy.
“Charging multiple tax rates on different industries and transactions is non-neutral and adds unnecessary complexity to the tax code,” said Tax Foundation economist Elizabeth Malm. “The expansion of the sales tax base to services is unfortunately far less comprehensive than we originally hoped, but the plan still represents a step forward. We hope that future reform efforts will continue this work.”
The legislation will reduce the income tax from 7.75 percent to 5.75 percent while eliminating carve-outs. It also provides a $7,500 standard deduction, an increase from the state’s existing $3,000 deduction, drops the corporate rate to 5 percent, modestly broadens the sales tax to include some service contracts, and eliminates the state’s estate tax.