Reynolds signs largest state tax cut in Iowa history. Here's how much taxpayers could save.

HIAWATHA, Ia. — Iowans will have their state tax bills reduced by an average of $300 annually under a tax cut bill signed by Gov. Kim Reynolds on Wednesday that could become a major campaign issue this fall.

Reynolds, a Republican who made changes in tax policy a cornerstone of her agenda for the 2018 legislative session, celebrated with about 75 people, including key GOP lawmakers, during a ceremony at MobileDemand, an eastern Iowa manufacturer of rugged tablet computers.

"I signed this bill for every Iowan who works hard to earn a paycheck and deserves to keep more of it,” Reynolds said.

She recalled that when she and her husband, Kevin, were younger, he worked days and she worked nights to make ends meet. "People might think that $50 isn’t much. Well, it is. It makes a difference. It is groceries; it is gas; it is new shoes. It matters," she added.

Senate File 2417, which was passed after heated debates between Republicans and Democrats in the final hours of this year's legislative session, slashes state revenues by a total of $2.1 billion over the next six fiscal years.

Minority Democrats fiercely opposed the bill, with Sen. Matt McCoy, D-Des Moines, predicting it will put state government "on a bobsled to bankruptcy." Democrats also complained the legislation is tilted toward giving the biggest tax cuts to the wealthiest Iowans.

Republicans insisted the legislation is fiscally sustainable and that Iowa's economy is on sound footing that will generate additional growth of state revenues. They also said almost every Iowan will see a tax cut from the legislation.

The changes in Iowa's tax code will end federal deductibility, create sales taxes on digital goods and services and reduce both individual and corporate income taxes.

Despite lobbying by bankers, the bill does not levy new taxes on credit unions. The tax cut totals about 5 percent of potential state revenue over the six-year time frame.

Reynolds said that if lawmakers had done nothing to address taxes during the recently concluded legislative session, Iowans would have seen increases in their state tax bills because of the impacts of the federal tax reform bill approved by Congress in December.

According to Iowa Department of Revenue estimates, the impact of the new tax cuts on Iowans will range widely across income and family status.

For example, a single person making $24,000 can expect to save $59, or 7.9 percent. A single person making $87,000 can expect to save $271, or 6.1 percent.

A married couple with two children making $96,000 can expect to save $347, or 8 percent.

Tax filers whose adjusted gross income is more than $1 million per year will see a 19.4 percent savings — a savings of $24,636 on average.

Reynolds, who is unopposed in Tuesday's primary for the Republican nomination for governor, is touting the tax bill, along with other business-friendly legislation, as she campaigns statewide for a full four-year term in November's election.

After six years as lieutenant governor, she became governor last year when former Gov. Terry Branstad was appointed U.S. ambassador to China.

"This is important to Iowans," Reynolds said of the tax bill. "They are coming up and saying, 'Thank you for doing this. This is more money in my pocket.' "

Matt Miller, the president of MobileDemand, said his company employs about 30 people and it is seeing steady growth with more than 60,000 rugged tablets deployed by businesses, emergency medical crews, farmers and others.

He praised the passage of the state tax legislation, which, when coupled with federal tax cuts, will help his business grow, he said.

"This will benefit my company and my family and it will benefit all of Iowa," Miller said.

Senate Democratic Leader Janet Petersen of Des Moines issued a statement Wednesday accusing Reynolds and Republican legislators of putting the state at greater financial risk with a tax scheme that is a bad deal for most Iowans.

She described the newly signed bill as "bursting with giveaways" to millionaires, wealthy corporations and people who don’t live in Iowa.

"It will raise property taxes on Iowa families, seniors and small businesses; and it will result in deep, deep cuts to health care services, job creation and education, and public safety," Petersen said.

Petersen said Senate Democrats had supported tax reform that would be fair for working families and small businesses, and which would make Iowa businesses more competitive.

Democrats also wanted a tax plan that would take into account the state's ongoing budget troubles, and to address corporate tax giveaways, which she described as the fastest growing part of the state budget, she said.

“By every measure, the tax plan approved in the 11th hour of the 2018 session failed every one of those tests," Petersen said.

John Stineman, executive director of the Iowa Chamber Alliance, which represents the state's largest Chambers of Commerce, said he supports the legislation. He has repeatedly contended that updating the state's tax code was long overdue.

"This absolutely helps us move the needle on competitiveness," said Stineman, who attended Wednesday's ceremony. "This is a big moment for moving Iowa forward in terms of income tax."

Republican leaders said they have constructed the plan to line up with estimated revenue growth. But if revenue doesn't grow as fast as expected — which has repeatedly happened the last two years — the new law includes built-in fiscal guardrails.

A series of "triggers" are intended to ensure tax cuts only take effect if revenue goals are met.

Beginning in 2019, the plan reduces the tax rate in each of Iowa's nine existing tax brackets. If revenue estimates are met in 2023, the plan reduces the number of tax brackets from nine to four and reduces the top bracket from 8.53 percent to 6.5 percent.

The GOP tax plan also raises some taxes.

The proposal calls for collecting sales taxes on video-streaming services, digital video rentals, ride-share services and taxis. Republicans who drafted the legislation contend those moves will modernize the tax code and provide parity between online and brick-and-mortar retailers.

The Department of Revenue expects sales tax changes to raise an additional $66.7 million in fiscal year 2019. By fiscal year 2024, those changes should add $177.8 million in new revenue.

An Iowa Fiscal Partnership analysis predicts taxpayers in all brackets will see an average increase in sales tax each year from the changes.

Those earning less than $25,000 will pay an average of $16 in additional sales tax each year. Those earning $43,000 to $65,000 will pay an extra $47 per year in sales tax, the analysis predicts.

And those earning $426,000 or more will pay $224 more in additional sales tax annually.