Iowa simply can’t afford Republicans’ proposed tax cuts.
State lawmakers are considering two different tax reform plans, one by Senate Republicans and another by Gov. Kim Reynolds’ office. While Iowans will find some worthwhile proposals in each of these bills, they ultimately could have a devastating impact on the state’s ability to fund basic services.
Just two months ago, Reynolds stood before lawmakers in the Capitol and promised Iowans she would not rush through significant tax reform this legislative session.
“It may take a multiyear effort, but we are going to completely reform our tax code. We’re going to make Iowa more competitive, and we’re going to continue to be a place where businesses — big and small — want to grow and expand,” Reynolds said during her Condition of the State address in January.
Yet far short of a multiyear effort, both GOP tax reform bills came into public view only in mid-February, about halfway through the planned legislative timetable. The Senate approved its version within a week, with just two amendments.
We see a process unfolding with little opportunity for legitimate input or rigorous discussion about the merits of each proposal. The Republicans won control of state government, and nobody should be surprised they’re using their majorities to cut taxes, yet this moment calls for caution.
We also see an opportunity for Reynolds to define her role as a bipartisan leader, and demand some fiscal common sense from her Republican colleagues in the Legislature.
State analysts have not yet released a detailed breakdown of the Reynolds bill, but her office estimates it would reduce Iowans’ income taxes by $1.7 billion overall over six years. Her bill also includes triggers to boost tax cuts if the state sees economic growth.
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The Senate bill cuts taxes much more aggressively, slashing $200 million from next year’s revenue forecast, and ramping up to nearly $1.2 billion annually by the time it’s fully implemented in 2023. That includes nearly $1 billion in income tax cuts in 2023.
Perhaps Republican leaders put these bills forth as a starting point, and they’ll be willing to make compromises. We hope that’s the case, because Iowa’s $7.2 billion budget cannot absorb revenue cuts so large. Even Reynolds admits, “we are working through difficult times with our state budget.”
The bills also tinker with Iowa’s excessive tax credit system with some good changes and some bad, but ultimately making it more complicated. That’s confounding, considering many state leaders agree on the need for an interim committee to study the tax credits and make legislative recommendations.
It makes little sense to alter tax credits while more changes are likely on the horizon just a year from now. That is in direct contrast to the common Republican talking point of using tax policy to give businesses and families more stability and predictability.
The proposals also would replace some lost tax revenue with an unprecedented expansion of the state’s sales and use taxes, including taxes on online shopping and other digital or mobile-based services.
There is little doubt about the need for tax reform in a state with some of the highest tax rates in the country. And there are some immediately necessary measures to couple or decouple with federal policy following the national tax reform law passed late last year.
However, legislation of this magnitude should not be passed in a rush and without broad public discussion. If Republicans hope to transform state government through tax policy, they must first do the hard work of convincing Iowans of their vision. So far, they haven’t.
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