Hendrickson: A Case for Bold Tax Relief in 2022, A Majority of Iowans Want It

Keep our economy open, spend conservatively and lower tax rates. This is the economic formula that creates a solid fiscal foundation for Iowa. It’s also the formula that 53.7 percent of Iowans support. A majority of the Iower, 59 percent, also advocate continued tax relief. This is the direct opposite of the tax and spending agenda, which creates a weak foundation that is quickly eroding. The Revenue Estimating Conference (REC), tasked with the difficult task of forecasting revenue, estimates that revenue will increase for both fiscal years 2022 and 2023. The REC estimates sales of $ 8.934 billion for fiscal 2022 and $ 9.075 billion for fiscal 2023.

The good revenue prospects will be achieved in addition to the general fund’s budget surplus for fiscal year 2021 of $ 1.24 billion. Governor Kim Reynolds’ critics argue that the loans to Iowa’s strong and stable fiscal house are among the massive sums of government stimulus spending. However, this argument does not hold up. The Iowa Fiscal House is on solid foundations as it has financially conservative policies.

At that point, Iowa has received over $ 9 billion in federal stimulus dollars. Governor Reynolds has used these federal funds for a variety of purposes including pandemic relief, broadband, and most importantly, replenishing the Iowa Unemployment Fund. However, the legislature has taken care not to budget these funds. Iowa’s budget surplus is not the result of massive federal stimulus spending, but rather the result of prudent budget planning by Governor Reynolds and the Republican-controlled legislature.

Unemployment in Iowa persists and has remained low, and Iowa’s gross domestic product (GDP) rose 7.7 percent in the second quarter, which was one of the highest in the country. Iowa’s economy is recovering, and a major reason for this is keeping the economy open and adhering to fiscal conservatism. The strong raw material prices also helped the economy. If government incentives were key to economic growth, we would see our neighbors in Illinois and other advanced “blue” states in better fiscal shape.

Before the pandemic, the Iowa finance house was fine, and before the 2020 legislature, the budget was in surplus of $ 305 million. Truth in Accounting in their 2021 State Financial Condition ranks Iowa in the top 10 (9 of 50) financially stable states. On the way into the 2022 legislature, not only will lawmakers have a surplus of $ 1.24 billion, but the reserves are full, including $ 1.054 billion in the tax aid fund.

With a massive surplus and stable revenues, Governor Reynolds and Republican legislatures rightly make tax reform a priority in 2022. Tax reform has been a priority since 2018 and Governor Reynolds understands that Iowa’s economy needs to grow and become more competitive, and high tax rates need to be cut.

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The $ 1.24 billion surplus, along with the REC estimate, provides a path for further tax relief. In the last legislative period, the legislature lifted the income tax triggers in 2018, which will reduce the individual income tax rate to 6.5 percent in 2023. The lifting of the triggers was part of a larger tax relief bill passed by lawmakers.

With a top tax rate of 6.5 percent for individuals and a top tax rate of 9.8 percent for businesses, Iowa still has high tax rates. Many states are in the process of lowering their income and corporate tax rates. One economic challenge facing Iowa is the need for labor and the growth of our population. An important lesson from the census figures is that low-tax countries are gaining in population, while high-tax countries are experiencing mass exodus. If Iowa is to remain economically competitive, it must cut tax rates.

In 2022, the legislature has the opportunity to pass a serious tax reform. Policymakers should ensure that tax reform benefits all Iowers, not a specific socio-economic class. Governor Reynolds has stated that their ultimate goal is to get rid of income tax. Senate majority leader Jack Whitver joined the governor in calling for a way to abolish state income tax.

This is a positive political goal, but it will take time to be achieved. Steering tax reform is not an easy task, but legislators can use various policy tools to lower tax rates. Perhaps the best way to bring the rates down is to use triggers. Several states have used triggers to lower tax rates for both individuals and businesses. The important thing about triggers is that they do not act as obstacles to tax reform. The 2018 triggers are a perfect example, especially the 4 percent growth requirement. A trigger should serve as a guide rather than an obstacle to lowering the tax rate.

Tax rates can also be reduced gradually, as Indiana has done for the past few years. Regardless of the path you take to cut rates, it is important to make sure that spending is controlled. Iowa can look at non-income tax states like Florida and Texas and see their economies grow, or other states like Utah, North Carolina and Indiana that have successfully lowered their income tax rates to create a growth-friendly environment. Income tax abolition is a good policy goal, but a low income tax rate can create a growth-friendly tax climate.

The real threat to future Iowa tax breaks comes from the federal government’s tax and spending policies. President Joe Biden’s “Build Back Better” agenda and its trillions of new spending are not only causing inflation, but proposed tax hikes threaten to destroy economic recovery. Inflation is the cruelest tax, and it is a hidden tax that is eating up wages and savings.

The budget surplus and solid revenue projections open the door to major tax reform in 2022.

Iowa taxpayers, who suffered from the pandemic and numerous devastating weather storms, deserve tax breaks. Keeping our economy open, spending conservative and lowering tax rates works for Iowa and has created a solid fiscal foundation for future growth.