Iowa will be a much more attractive place for out-of-state businesses and workers looking to relocate because of newly enacted tax cuts, according to the Iowa Business Council, a group that represents 22 of the state’s top employers.
The state previously had the distinction of the highest nominal corporate income tax rate in the nation of 12% — which for 30 years applied to businesses with incomes of more than $250,000 before a recent cut to 9.8% in 2021. The ranking does not consider tax credits and exemptions. A new single rate of 5.5% for all businesses is expected to be phased in over a period of years, depending on the state’s tax receipts.
Personal income tax rates will also decrease from a maximum of 6% to a single rate of 3.9%.
“We think it is a huge improvement from a competitiveness standpoint to make Iowa much more attractive as a place to potentially relocate businesses (and) as a way to get new talent into the state with competitive wages and competitive personal tax policy,” said Tim Yaggi, the chief executive of Pella Corporation and chairperson of the council, which has long advocated for reform of the state’s tax code. “Really excited about that.”
The corporate tax rate cut will place Iowa among the lowest rates in the country after being among the highest for decades. The tax rate has not been so low in the state since 1966, when it was 4%, according to the Iowa Department of Revenue.
Yaggi’s remarks on Thursday were tied to the council’s newly released annual report on Iowa’s competitiveness with other states based on five metric categories: economic growth, education and workforce, governance, health and wellness, and demographics and diversity.
Overall, the state received good marks, but a principal concern of the council is a long-standing shortage of workers that was exacerbated by the coronavirus pandemic. The state’s labor force now has 76,000 fewer people than it had just before the pandemic, said Joe Murphy, the council’s executive director.
“We need to make our state the most welcoming and inclusive place as possible for all Iowans and, hopefully, new Iowans that want to come into our state,” Murphy said Thursday.
New legislation that Gov. Kim Reynolds signed into law later that day — that bans transgender girls and woman from competing against other girls and women in sports at K-12 schools and colleges — will not help the state appear more welcoming, Murphy and Yaggi said.
“We need people who can view Iowa as an opportunity, but then once they get here, they feel included, they feel welcome, they feel like they belong,” Yaggi said.
Workforce diversity is a common issue Yaggi said he discusses with the leaders of other large companies in Iowa. He said Pella has sought recently to make its jobs more appealing to employees who don’t speak English. The company, which makes high-quality doors and windows, has been translating all of its assembly instructions into Spanish and has been hiring bilingual managers.
A lack of available housing and child care are also perennial roadblocks to attracting new workers.
The pandemic led to a substantial increase in people working from home, which has been difficult for employers to navigate, Yaggi said, because it can be disruptive to a traditional workplace culture that relies on face-to-face interaction and because it has increased competition for workers.
Some have heralded working from home as a way to boost the populations of rural Iowa, where high-paying jobs can be scarce, but the same phenomenon can play out on a national level.
“It’s attractive to live in Iowa but work for maybe a company that’s in a higher-cost area,” Yaggi said. “It works both ways. I think it’s an opportunity, but at the same time, it’s a threat.”
The council’s annual report — the 2022 Iowa Competitive Dashboard — gave the state its highest marks in education, especially for its percentage of people who pursue further education after high school. Iowa also ranks in the top half of states for 4th-grade reading proficiency and 8th-grade math proficiency, which the council said “are leading indicators for future success.”
The state’s worst performance pertained to health and wellness. Iowa ranked 43rd in the nation for obesity rates. Its saving grace in the category was overall health insurance coverage, for which it ranked sixth.
The report is meant to be a guide for lawmakers, businesses and community leaders to help them improve the business climate of the state, Murphy said.
The council’s members include representatives from the following companies: Alliant Energy, Casey’s General Store, Collins Aerospace, Corteva Agriscience, Deere & Company, Fareway Stores, HNI Corporation, Hy-Vee, Iowa Bankers Association, Kent Corporation, MercyOne, Meredith Corporation, MidAmerican Energy Company, Pella Corporation, Principal, Ruan Transportation Management Systems, The Weitz Company, UnityPoint Health, University of Iowa Health Care, Vermeer Corporation, Wellmark Blue Cross and Blue Shield of Iowa, and Wells Enterprises.
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