Branstad's right about tax cuts, but will the Legislature listen?
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24 Hour Dorman
I must admit I’m with the ‘stache on this one.
“Considering the difficult budget decisions we’re faced with this year, at this time at least I’m not making a recommendation for a major tax reform this year,” Gov. Terry Branstad told reporters earlier this week. Branstad said, although he’d like to reform and reduce taxes, a tight budget and sluggish revenues stand squarely in the way.
This is a fine and, sadly, rare example of adult governing.
State revenues already are falling short of what’s needed to cover budget needs, both now and next year. Slicing them further would be irresponsible. Branstad understands that. Math, you just can’t beat it.
However, adult governing isn’t always embraced elsewhere in our Capitol, such as inside the Golden Dome Institute for Magical Thinking and Revisionist History. Some call it the Legislature.
Senate Majority Leader Bill Dix, R-Shell Rock, a top institute fellow, swiftly countered this gubernatorial pessimism with fond memories of his freshman year in 1997. That was the legislative session when a GOP General Assembly and Branstad approved a 10 percent across-the-board income tax cut.
“People claimed at the time that the sky would fall and revenue would tank and the truth of the matter is we saw on the heels of that decision some of the strongest growth that Iowa has seen in the past because it changes people’s behavior and that’s what we really want to do,” Dix told reporters also gathered for the Associated Press’s annual pre-session forum.
Meteorologically speaking, tax cuts don’t cause the sky to fall. It’s a Chinese hoax.
As for tanking revenues, Dix’s memory is highly selective.
I missed the great tax jubilee of 1997, but I was on hand as a Statehouse reporter in 1998 and for several years thereafter. The 1997-98 General Assembly, the last time the GOP ruled the roost, was defined by the joyous notion of state government sitting on a “$900 million surplus.”
In reality, that surplus was more like $435 million, after subtracting dollars that must flow, by law, into a pair of reserve accounts. Lawmakers have to jump through special hoops to tap those accounts. But the rest is free for lawmakers to use as they see fit. And boy did they use that surplus.
By the fall of 2001, revenues started to tank. An editor at the time assigned me to write a story explaining what happened.
Clearly, math is the culprit. Between 1996 and 2001, state general fund spending grew by $1 billion while a series of tax cuts small and large added up to $800 million. Also, the U.S. economy slumped, a downturn intensified by the 9/11 terror attacks. The temporary surplus, and they always are temporary, was washed away.
Republicans blamed Democratic Gov. Tom Vilsack, elected in 1998, for embarking on a spending spree. Democrats blamed Republicans, who controlled both the House and Senate from 1997 on, for pushing unaffordable tax giveaways. Fingers pointed mightily amid across-the-board cuts and special legislative sessions.
Both sides had ample ammunition.
Along with the $200 million income tax cut, lawmakers increased tax breaks for pensioners, cut inheritance taxes and provided “targeted” breaks to investors, college grads, parents, preservationists, hospitals, hospices, aircraft buyers, massage therapists and the Iowa State Fair. And that’s only a partial list. They took over some local programs to reduce property taxes.
As for the spending spree, state aide to public schools increased by $470 million between 1996 and the 2002 budget, along with big investments in reducing class sizes, improving school technology and reforming teacher pay. New prisons coming on line in Clarinda, Newton and Fort Dodge boosted the corrections budget by 61 percent.
Personally, I think spending money on public education and operating prisons should be much higher priorities than handing out tax breaks to people buying airplanes, etc. Even the 10 percent income tax cut, considering its budgetary bite, wasn’t exactly a major windfall for most Iowans. The economic benefits of those tax cuts are tough to measure, but easy to exaggerate.
Maybe you disagree. Perhaps strongly. But the real issue here is the tendency for elected leaders to eagerly pursue what they want ever so much now without reflecting on the hard reality of what it means down the road. Legislators love to serve up big fat slices of pie for their favorite interests with little thought on how future legislatures will be stuck putting the budget on a crash diet.
So when Dix starts rationalizing his hopes for unaffordable tax cuts now by pointing to the false history of unaffordable tax cuts 20 years ago, it’s high time for a reality check. His rose-colored rearview mirror is far less accurate that it appears.
If Republicans want to cut some taxes, they’ll either have to raise other taxes or cut spending to cover the gap. Or maybe clear away some of the special interest tax breaks lawmakers have handed out over the past two decades-plus. Anything else is smoke and mirrors.
So far, GOP leaders have rejected the notion of raising the sales tax to, in part, fill the Natural Resources and Outdoor Recreation Trust Fund and to provide bucks for offsetting income tax reforms. A list of tax breaks on the outs has yet to emerge. And as far as spending cuts, I’ve heard no talk of using deep cuts to offset tax reductions. We’ll see what happens.
Otherwise, you’ve got to live with the math. Branstad 2017 seems to understand that better than Branstad 1997. Give that guy a free trip to China.
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