House Republicans have introduced a bill to eliminate the state income tax on retirement income from pensions, IRAs and 401(k)s.
Republican House Speaker Pat Grassley suggests it might prompt some older Iowans to reconsider relocating or living more than half the year in another state that doesn’t tax retirement income.
“I think we’re losing a lot of those people that I would say are the pillars of our communities, They’re the ones that volunteer. They’re the ones that philanthropically are supporting those organizations and foundations in the community,” Grassley said during an appearance on “Iowa Press” on Iowa PBS. “We want to keep those people and they want to stay in Iowa, but if it’s beneficial to maybe just move across the border or move to some other states that don’t have these (taxes), I don’t want that to be a barrier to keep those people in our communities.”
Social Security benefits are not taxed in Iowa. This House GOP plan — to expand that exemption to all retirement income — would go into effort for the 2022 tax year. That’s a year earlier than Republican Governor Kim Reynolds has proposed. Senate Democratic Leader Zach Wahls said the idea doesn’t meet the goal of targeting tax relief to low and middle income Iowans.
“We know that folks who are on fixed incomes can sometimes struggle with the tax burdens that they face,” Wahls said las week. “But, again, if you’re a multimillionaire and you’ve got a really significant income from your investments, what have you, I don’t think that makes a lot of sense.”
The governor’s staff estimates the state would collect $400 million less in taxes annually if income from pensions and other retirement accounts is no longer subject to the Iowa income tax.