Gov. Kim Reynolds and key GOP lawmakers said Friday new state revenue projections support their move to accelerate income tax cuts.
The three-member Revenue Estimating Conference met Friday to update the state’s official revenue estimates. The new projections show that even if lawmakers take no action, tax cuts based on revenue growth would take effect in a little over a year under legislation approved in 2018.
In a statement, Reynolds said the projections show strength in the Iowa economy. She endorsed the idea of accelerating the 2018 tax cuts.
The 2018 legislation set out a package of additional tax cuts, should revenues hit $8.3 billion with 4% growth. The new revenue estimates fall just short of the 4% level for the upcoming fiscal year. The Senate has approved a bill to eliminate those “triggers” and implement the tax cuts immediately.
“Today’s forecast shows that Iowa’s economy is strong, and we can make it even stronger by ensuring that our historic 2018 tax cuts are fully implemented and giving Iowans certainty that they’ll see more in their paychecks,” Reynolds said. “We can easily do that by removing the unnecessary triggers, which are no longer needed and only stand in the way of our future growth. I was pleased that the Senate voted unanimously to remove these triggers and look forward to signing the final bill making these significant tax cuts a reality for Iowans.”
Senate Majority Leader Jack Whitver, R-Ankeny, made similar comments in a statement.
“Today’s REC meeting served as another confirmation of the success of our pro-growth policies. It also illustrates the need for SF 576 to remove the revenue triggers in the 2018 income tax cut law,” Whitver said.
He said making the tax cuts before the original triggers are met would “provide certainty for Iowa small businesses to help them create more career opportunities and Iowans will keep more of the money they earn.”
Democrats said President Joe Biden and those who provided coronavirus vaccines deserve part of the credit.
Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee, said the state has been “resilient.”
“For months we’ve heard Iowa’s economy would be stuck in neutral until more vaccinations arrived,” Hall said. “The state appears to be on the path to a strong recovery thanks in part to our resilience, and the huge increase in vaccinations and economic relief provided by the Biden administration.”
The Revenue Estimating Conference approved revenue projections that would leave the state just shy of the growth needed to trigger automatic tax cuts in the budget year that begins this July. But the projections for the following budget year, beginning July 1, 2022, would meet the requirements for a new round of tax cuts, set out in the 2018 bill.
The revenue panel estimated the state government will have $8,078,900,000 in revenue in the current budget year, which ends June 30. That is slightly higher than the estimate of $7,969,300,000 made in December.
Revenue for fiscal year 2022, which begins July 1, 2021, is estimated at $8,385,600,000. That’s an increase of 3.8% over the current year. And the following year, beginning July 1, 2022, was forecast at $8,762,500,000, with growth of 4.5%.
The Revenue Estimating Conference estimates of general fund revenue are used in budget decisions by the governor and the Legislature.
The Iowa Senate passed Senate File 576 on Wednesday. The bill would accelerate the tax cuts by removing the triggers, and would phase out the state inheritance tax. But House Speaker Pat Grassley, R-New Hartford, said last week it might be too “aggressive” to eliminate the inheritance tax at the same time the 2018 income-tax cuts went into effect.
The Revenue Estimating Conference includes Iowa Department of Management Director Michael Bousselot, representing Gov. Kim Reynolds; Holly Lyons, fiscal division director of the Legislative Services Agency; and David Underwood, retired chief financial officer and treasurer for AADG Inc. in Mason City.
Lawmaker: Healthy growth ‘not by accident’
State Rep. Gary Mohr, R-Bettendorf, chairman of the House Appropriations Committee, in a statement said the projections show the health of Iowa’s state government.
“It is not by accident that Iowa’s budget was ranked as the No. 1 most prepared to withstand the financial challenges of COVID-19 by the nonpartisan Council of State Governments,” Mohr said. “It has taken difficult decisions and the disciplined approach that House Republicans have fought for over the last 10 years.”
Bousselot said the projections show Iowa recovering well from the pandemic. He noted the Iowa economy grew modestly even during the beginning of the pandemic last year. While the direct federal payment to the state of $1.4 billion in COVID-19 relief is not included in the projections, they do include increased sales tax revenue based on Iowans’ spending some of their stimulus payments from the federal government, he added.
They also include an economic boost related to higher grain prices and separate farm stimulus payments that will allow farmers to spend more, Bousselot said.
“The challenges that we faced in Iowa have been very real” during the pandemic, Bousselot said. “Our economy has been persistent, resilient, and frankly has grown.”