Capitol Report - Week 2 2022

The second week of the legislative session was shortened to three days to honor MLK Day on Monday, January 17th. This week was filled with subcommittee meetings in both chambers and a few procedural committee meetings. Members of the Legislative Services Agency, Fiscal Services Division, presented to each of the Appropriation Subcommittees on the Governor's proposed FY 2023 budgets.

Governor Reynolds' tax proposal was introduced Wednesday (HSB 551 and SSB 3044). Tax reform continues to be the legislature's main priority for the year. A breakdown of the proposal can be found below:

Individual Income Tax 

• Establishes a flat 4% individual income tax rate for all Iowans by 2026.
• If passed, Iowa will have the 5th lowest individual income tax among states that charge income tax.
• Repeals state taxes on retirement income in 2023 for income earned from IRA distributions, taxable pensions, and annuities.
• Exempts net capital gains on sales of employee-awarded capital stock
• Retired farmers, who farmed for at least ten years, can elect an exemption of income from either cash rent or farm crop shares for all years the income is earned or elect one lifetime election to exclude the net capital gains from the sale of farmland.

Corporate Income Tax 

• For every fiscal year in which net corporate income tax receipts exceed $700 million, the surplus will be used to buy down the current top rate.
• Following the close of the fiscal year, the Department of Revenue will determine the new top corporate income tax rate and apply it effective January 1st of the following tax year.
• New top rates will be determined each fiscal year that net corporate income tax receipts exceed $700 million until a uniform 5.5% corporate income tax rate is achieved, at which time the rate would be capped.
• Once the rate is capped, excess tax revenue beyond $700 million will go into the state's general fund.

This week, the House focused primarily on child care and mental health reform. The House Human Resources Committee introduced four bills addressing the mental health workforce and bed shortages, three of which passed through subcommittee. House Republicans also introduced three bills related to the Governor's childcare priorities to improve childcare access. 

The Senate continues to focus on tax reform. Senate Ways and Means Chair, Senator Dawson, indicated to the committee members that the committee would not be moving any other legislation forward until the committee passed the tax bill. 

Both chambers saw several bills introduced this week related to vaccine mandates by employers. Elements of the bills include ensuring exemptions, restrictions on mandatory testing requirements, and protection of employee health information. 

Next week: We expect to see more subcommittees and some committee work with the first funnel deadline less than a month away.