The Iowa Legislature made some difficult budgetary decisions this session because revenues are not rising as projected by the Revenue Estimating Conference (REC). This implies that revenue in Iowa is going down, but that notion is false because revenues are increasing, just not at the pace of government spending. In fiscal year 2017 the Iowa budget is projected to be $7.2 billion and state government spending continues to increase. The state budget in Iowa has increased from $5.9 billion in 2012 to $7.2 billion in 2017. To avoid more painful austerity measures and to protect taxpayers the Legislature must seriously address tax and spending reform. In addition, Iowa taxpayers must be protected by a constitutional amendment that would require a supermajority vote in the Legislature to increase taxes.
Most states have some form of a tax and expenditure limitation, or TEL, either in law or in their state Constitution. Tax and expenditure limitations also vary by type and strength. Iowa code dictates that the Legislature can only spend up to 99 percent of the projected revenue. The Iowa Senate has already passed a constitutional amendment to place the 99 percent spending limitation into the state Constitution, but the House has yet to act. As Iowa Legislators struggle with making difficult decisions to fund the numerous government programs there will be pressure to raise tax rates in an attempt to bring in extra revenue. This would not just be a policy mistake, but harm Iowa’s economy. Therefore, the Legislature should consider a state constitutional amendment to require a supermajority vote of the Legislature in order to raise taxes. This would provide taxpayers of Iowa with protections against excessive taxation.
Iowa has considered in the past, and almost passed, a constitutional amendment that would have required a three-fifths majority vote of the Legislature to raise taxes, but the voters rejected this amendment by a close 51-49 percent. A constitutional amendment would not only protect taxpayers, but also strengthen the current expenditure limitation already in the Iowa code.
Colorado, which passed a Taxpayer Bill of Rights, or TABOR, is one of the most aggressive examples of a tax and spending limitation amendment. The TABOR provision was adopted by Colorado voters in 1992 in response to high levels of taxation and spending. The purpose of TABOR was to bring spending and taxes under control by requiring voter approval of spending and tax increases. Under TABOR state spending is limited by population growth and inflation and it brought more accountability to government.
The problem with any tax and spending limitation amendment whether it is a supermajority vote of the Legislature or in TABOR’s case a vote of the people these measures are primarily defensive in the sense that they add greater protection to taxpayers, but it does not guarantee that government spending or taxes will not increase.
If Iowa wants to avoid further austerity in the state budget the Legislature must consider not only a constitutional amendment requiring a supermajority to raise taxes, but also work to lower tax rates and spending. The Legislature seems gun-shy on pursuing tax reform because of the revenue uncertainty and numerous “voices” across Iowa arguing for greater spending often drown out the taxpayer’s voice. The argument often advanced by liberals and progressives is that higher taxes and more “investment” or spending on areas such as education will spur economic growth in Iowa. The other argument made is that there is no room to cut spending and everything is vital. Both arguments will lead Iowa in the wrong economic direction.
Robert G. Natelson, a Senior Fellow in Constitutional Jurisprudence at the Independence Institute, wrote that “raising taxes and spending usually impedes, rather than stimulates, state economies.” The solution for Iowa then is to examine ways to not only protect taxpayers, but also create economic growth. This will require Iowa to lower tax rates and consider priority-based budgeting. In fact states that have pursued tax and spending reform have not only made improvements in economic growth, but it also has allowed for additional support to vital state programs such as education.
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Taxpayers in Iowa deserve more constitutional protection from excessive taxation and a constitutional amendment requiring a supermajority vote of the Legislature to increase taxes would be an additional protection for taxpayers. TELs serve a purpose, but they must be accompanied by pro-growth tax and spending policies. A state, just as with the national government, cannot tax and spend its way to economic prosperity.
• John Hendrickson is a Research Analyst with Public Interest Institute, a public policy think tank based in Muscatine, Iowa.