As personal, corporate and retirement income tax cuts are reducing state revenue, Republican officials say there is still plenty of room for more tax cuts.
Iowa’s Revenue Estimating Conference predicted Wednesday that state tax revenue will fall by about 1% this fiscal year and next as tax cuts passed in 2022 continue to phase in.
“I think there’s lots of room in there for all kinds of policy decisions, including tax cuts,” said Kraig Paulsen, who is Iowa Department of Management director and Gov. Kim Reynolds’ appointee on the revenue panel.
He said revenue is declining more slowly than initial estimates because “organic growth” in the economy is offsetting some of the impact of the tax cuts.
“Iowans are working, and they’re making money,” Paulsen said. “They’re spending money. They’re doing the things Iowans do. And so that generates revenue into the state.”
The panel is predicting the state will bring in about $9.7 billion this fiscal year and $9.6 billion next fiscal year.
The Republican-led legislature has budgeted far below its spending limits in recent years, leaving a massive budget surplus. Much of that money is transferred to the Taxpayer Relief Fund, which Paulsen said is expected to reach $3.6 billion that can be used for tax cuts.
“Today’s budget conference shows us once again that everyday Iowans are being left out,” said Rep. Timi Brown-Powers, D-Waterloo. “The state will have less funds to prioritize public education, health care, and workers all the while the governor and Republican lawmakers prioritize the wealthiest corporations.”
Senate Majority Leader Jack Whitver, R-Grimes, said the latest estimates show the benefits of cutting taxes.
“Hundreds of millions of dollars in tax cuts have helped Iowans keep more of their money to fight inflation and increase the reward for their work and investment,” Whitver said. “Projected revenues are expected to exceed state spending by $1.233 billion this year, setting the stage for Senate Republicans to seek more income tax relief, while implementing another conservative state budget.”
Sen. Janet Petersen, D-Des Moines, said Iowans deserve more opportunities for the middle class and fewer giveaways of public dollars to private interests.
“As we face declining state revenues, it’s troubling to hear that Gov. Reynolds and statehouse Republicans are concocting yet another round of multi-million dollar, multi-year tax giveaways for special interests and wealthy Iowans,” she said.
The chair of the Senate taxation committee said he will try again to eliminate the personal income tax, which makes up just under half of the state’s revenue. Reynolds has also said she wants to eliminate the income tax, but it’s not clear if that’s what she will propose for the 2024 legislative session.
House Republicans will likely come up with their own tax plan.
Revenue estimators say recession fears have diminished
Members of the Revenue Estimating Conference said Wednesday they are no longer fearing an economic recession.
David Underwood, the public member on the three-person panel, said he does not think they need to talk about the possibility of an imminent recession as they have over the past year.
“The continued discussion of ‘When’s the recession coming?’—it seems like finally everybody decided well, it hasn’t got here yet, so maybe we won’t have one, at least in the near term,” he said. “So that consensus kind of helps a little bit, that we aren’t just wondering when that bottom is going to fall out.”
He said economic conditions seem to be more stable in Iowa than in other parts of the country.
Underwood also announced his retirement after decades of serving on the revenue estimating conference. The two other members of the panel, one appointed by the governor and one employed by the legislative branch, will choose a replacement.
