Governor's unemployment insurance tax bill passes Legislature

Yahoo

14-05-2025

Iowa lawmakers gave final approval to legislation cutting the taxes employers pay into the state's unemployment insurance fund. (Photo by Getty Images)
Both chambers of the Iowa Legislature passed changes to Iowa's unemployment insurance taxes Wednesday, sending Gov. Kim Reynolds' proposal to her for final approval.
Senate File 607, brought forward by Reynolds early in the 2025 legislative session, would cut the taxable wage base used to calculate unemployment insurance taxes in half from 66.7% to 33.4%.
It includes other changes, like reducing Iowa's unemployment tax tables, and excludes wages paid from employers to employees working in other states from the definition of 'taxable wages' if the other state extends reciprocity to Iowa.
The bill passed the Senate 32-16 and the House 59-27. In the House, Rep. David Young, R-Van Meter, said Iowa is in a good position when looking at the amount of money in the state's Unemployment Compensation Trust Fund — $1.95 billion — but said there have been questions 'legitimately' raised about what would happen to the fund in the case of a recession or economic downturn.
Though the bill contains decreases to the taxes going to this fund by decreasing the taxable wage base, Young said changes to the tax rate are triggered under current law — and retained in the bill –if the balance of the fund falls below $941 million.
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'Our state's unemployment rate is 3.4%, and with an unemployment insurance trust fund at almost $2 billion, the sound argument is being made that we've been over-collecting — especially compared to other states,' Young said. 'The proposal before us saves employers and businesses approximately $975 million over five years, injecting that back into the private sector.'
Democrats proposed multiple amendments in both chambers, including measures to reverse Iowa's cuts to unemployment in recent years, each of which failed. One Senate amendment would have waived work search requirements for people with seasonal employment.
In the Senate, lawmakers opposing the legislation said it does not help workers but benefits the companies that lay them off, causing residents to find work in another state rather than try to figure out a complicated, burdensome system that won't provide aid for as long as they need.
'Our unemployment system is rigged for the employers, particularly with this bill,' Sen. Molly Donahue, D-Marion, said. 'It is the workers who hold those businesses up, and we need to do better by those workers, not give more breaks to the employers who are laying them off.'
Sen. Bill Dotzler, D-Waterloo, said he was 'ashamed' of Senate Republicans for how they're treating workers with the legislation by not allowing more time to take advantage of benefits and helping businesses more than employees.
Providing unemployment insurance to Iowans doesn't mean they're just being handed a check, Dotzler said, it means they have the time to better themselves for employment while they seek it and won't have to worry as much about finances in the process.
One of the House Democrats' amendments proposed requiring savings for employers through the bill be used to increase employee salaries or benefits — a suggestion, not requirement, under the current legislation.
Democrats argued during debate on the bill in the House the unemployment funds need to be available for Iowans in need, and that businesses should not necessarily be trusted to use tax savings on better compensation for workers. Rep. Lindsay James, D-Dubuque, said 'the reason the fund is full in the first place is because this body, the majority party, voted to strip workers' benefits.'
'The money in this fund was never meant to go back to the big corporations,' James said. 'It was meant to go to workers, and that's where it should be going. … This isn't policy. It is corporate theft.'
Young said most of the claims made by Democrats were factually inaccurate, saying the measure does not provide an 'corporate income tax break,' and does not cut any unemployment benefits.
Sen. Adrian Dickey, R-Packwood, called concerns brought up by Democrats 'old, tired talking points,' and said the problems they worried about with previous unemployment legislation have not come to fruition. Iowa's population grew between 2023-2024, he said, countering statements that Iowa is losing workers in favor of going to other states with better pay, benefits and unemployment programs.
For the lawmakers who said the process to apply for unemployment is too complicated, harming those who need aid, Dickey said they'd be happy to know that Iowa Workforce Development will launch updated websites and materials this summer.
Dickey acknowledged there are flaws in the current system, including the state's unemployment fund, and said the Legislature should take time next year to take a hard look at how unemployment works in the state. However, Iowa is third in the nation for average weekly rate of benefits at just over nine weeks. He asked why Iowa would want to be like its neighbors, which have longer averages.
'The Republican Party has been the party to stand up for Iowa workers,' Dickey said. 'We are the party that wants our workers to aspire more than desiring an unemployment check.'
Reynolds released a statement celebrating both chambers passing the measure.
'Passing this bill means nearly $1 billion in savings over five years for Iowa businesses of all sizes,' the governor said in a statement. 'Thank you to our legislators and key stakeholders for their support to help attract new business to Iowa and place existing businesses on a level playing field with our neighboring states.'
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