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Iowa’s 2025 Predicted Economic Growth: Higher Wages, Lower Taxes

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Iowa’s official nickname is the Hawkeye State, but the Corn Connoisseurs, Farming Aficiandos, or a different agriculture-adjacent term might be more accurate. After all, more than 90% of its approximately 56,273 square miles are dedicated to agricultural practices, and its 2023 United States Department of Agriculture estimated 86,800 individual farms are the third most in the U.S. behind Texas and Missouri

The upper Midwestern state, which produced roughly 2.5 billion bushels of corn in 2023 — 16.339% of the country’s total — is, rather unsurprisingly, the top-producing state for corn, pigs, eggs, ethanol, and biodiesel – which specifically benefits from the Inflation Reduction Act’s extension of the biodiesel and renewable diesel tax credit, as well as the biodiesel mixture tax credit, alternative fuel tax credit, and alternative fuel mixture tax credit. 

Although agriculture remains a major industry in Iowa, a different set of factors are positioned to drive its economic growth in 2025: raised wages and salaries, an increase in manufacturing jobs, and a significant reduction in the state’s individual income tax rate.

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The 2025 Salary Guide published by Palmer Group, the state’s leading employment agency, includes detailed reports and data representing how employers are approaching the job market for the year. Spoiler alert: the employers paint a largely positive perspective.

For starters, 97% of businesses plan to increase their compensation (employee wages) by at least 1%, the highest percentage in the annual survey’s five-year existence. 

According to the guide, while only 5% of businesses plan on raising wages by 5% or more — an all-time low — the percentage planning to raise wages by 3–4% went from 65% in 2024 to 78% in 2025 — an all-time high. Amidst shrinking labor force numbers in Iowa, these rising wages and salaries have become the focal point of the state’s pitch to attract and retain workers across a number of industries. According to the Federal Reserve Economics Data, total wages and salaries paid in Iowa nearly surpassed $100 billion for the first time in the third quarter of 2024 despite the slight decrease in overall workforce participation. 

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On the hiring front, 45% of the companies surveyed by the Palmer Group plan to increase their number of staff, 49% plan to remain the same, and 6% plan to decrease their numbers. According to the 2025 Salary Guide, implementing new technologies saw the largest increase in what businesses will focus on in the year, nearly doubling from 8% in 2024 to 14% in 2025. 

Lastly, there were some major shifts in the work models of Iowa businesses. The survey results found that the percentage of firms operating on hybrid work models will increase from 25% in 2024 to 32% in 2025, and the amount working 100% in office will rise from 33% to 38% over the same period. 

A report on Iowa’s education and workforce trends through 2025 from Georgetown University’s Center on Education and the Workforce through the McCourt School of Public Policy further predicted that the state’s manufacturing industry would add almost 19,000 jobs between 2010 and 2025, an 11% increase over the time period. 

At a wider glance, Iowa’s 3.1% unemployment rate as of November 2024 is close to February 2020 levels, indicating signs of a healthier labor market compared to the previous few years.

That unemployment rate makes it the 10th lowest of all the states, with its labor force participation rate of 66.3% — one better at 9th — higher than its peak COVID-19 pandemic level of 65.5% in August 2020

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Additional economic growth is expected to come from Iowa’s individual income tax rate, which dropped to 3.8% at the beginning of 2025. The tax cut was driven largely by Gov. Kim Reynolds, who signed Senate File 2442 into law in May of last year. The law shortened the timeline of a previous tax cut measure signed by Reynolds in 2022, which was set to lower the individual income tax rate to 3.9% when it went into full effect in 2026. 

“The bill I’m signing today allows the flat rate we enacted two years ago to go into effect in 2025 while reducing it yet again to 3.8%,” Reynolds said in a statement.

“The bottom line is that every Iowa taxpayer will experience significantly lower rates starting next year, and collectively, all the tax cuts we’ve enacted since 2018 will save Iowans more than $23.5 billion over a decade.” 

Completely understanding the full effects that Senate File 2442 will have on Iowa’s economy is akin to predicting the future — it’s impossible to know until it happens. However, it’s also not a complete guessing game, and a comprehensive analysis from the Common Sense Institute Iowa forecasted that, over the next decade, the income tax rate cuts will lead to: 

  • $1.85 billion in tax savings for income-tax payers,
  • A $3 billion increase in after-tax income across the entire economy,
  • $1.72 billion in GDP growth,  and
  • Approximately 6,800 new jobs created in 2025.

In short, most indicators predicting Iowa’s economy through 2025 and beyond are showing signs of growth — just like nine-tenths of its land area is.

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