Republicans promise tax cuts after panel predicts revenue growth
The Revenue Estimating Conference met Dec. 13, 2021, at the Iowa Capitol to set a budget estimate for fiscal year 2023. (Photo by Katie Akin/ Iowa Capital Dispatch)
Republican leaders on Monday promised “significant tax cuts” after a state panel projected the state’s revenue will continue to grow over the next two years.
Fiscal experts on the Revenue Estimating Conference painted a rosy picture of the state’s economy during a Monday meeting. They project the current fiscal year will end with total net receipts over $9 billion — a growth of 3% compared to the previous year.
The panel also set what one member characterized as a conservative growth estimate for the state in the next fiscal year, which begins July 1, 2022. The panel predicted the net receipts will grow by 1.7%, for a total of $9.21 billion.
Lawmakers will work with that number to create a state budget when they convene at the Capitol next month.
“I think it’s a number that the General Assembly and the governor can feel confident in as they prepare their budget,” said Kraig Paulsen, interim director of the Iowa Department of Revenue.
Following the revenue estimate, Republican leadership promised tax cuts to Iowans. Gov. Kim Reynolds, who appointed Paulsen in September, said the “overcollection of taxes is unethical and it must end.”
“Iowa’s economy continues to show very positive signs of growth,” Reynolds said in a statement. “I will continue to fight to return these funds to the hands of hardworking Iowa taxpayers and explore significant tax cuts this legislative session that will make Iowa one of the most competitive states in the country.”
Several Republican legislators said they hope to eliminate Iowa’s income tax entirely, and Reynolds has indicated that she would be on board with the change.
“The priority of Senate Republicans is to eliminate income tax in the state of Iowa,” Senate President Pro Tempore Brad Zaun said at an event last week. “I do believe that would probably be one of the biggest tools to attract people to Iowa, if we can get that done.”
Democrats argued the Republican plan would primarily benefit corporations and “Des Moines millionaires.” Sen. Joe Bolkcom, ranking member of the Senate Appropriations Committee, said the funds would be better spent on tax cuts for low-income and middle-income families, or for investments in job training, child care and housing.
“Contrary to what the governor and legislative Republicans are saying, more corporate tax giveaways and tax cuts for Des Moines millionaires will only make their workforce crisis worse, especially in rural Iowa,” Bolkcom said in a statement.
Paulsen noted the state surplus could allow lawmakers to cut taxes, if they choose to. He said there will be “well over $2 billion” in the state’s Taxpayer Relief Fund by the end of the fiscal year.
“There’s gonna be a pretty significant ending balance, and so I think the General Assembly and the governor are in a position to do some really good things for the taxpayers of Iowa,” Paulsen, a Republican and former Iowa House speaker, said.
What happens next for Iowa’s economy?
Overall, members of the Revenue Estimating Conference said Iowa’s economy is in a strong position.
Holly Lyons, fiscal services director at the nonpartisan Legislative Services Agency, said Iowa’s tax revenues have been “remarkably resilient” to the COVID-19 pandemic. She noted that much of the growth had occurred since March of this year.
“(The growth) was largely due to the impact of the federal stimulus payments and consumer pent-up demand,” Lyons said.
Those are the same reasons Iowa saw a record-high surplus at the end of the previous fiscal year, according to the LSA. The state announced $1.24 billion left over, nearly a billion of which would be set aside for the Taxpayer Relief Fund.
But Lyons cautioned that the economy’s growth over the past several years may slow due to inflation, an ongoing workforce shortage and additional variants of the COVID-19 virus. She also said the state will collect less revenue due to tax cuts passed in 2021.
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