Iowa can't afford more tax cuts, Branstad says

Gov. Terry Branstad warned lawmakers Feb. 7 the state may not be able to afford all of the tax cuts they want in addition to those he has proposed.

Branstad has proposed $450 million in relief for property taxpayers and to cut state corporate income taxes in half. House Republicans are moving forward with a 20 percent cut in personal income taxes that would cost the state $204 million the first year and more than $700 million the second year.

Speaking on The Exchange, an Iowa Public Radio public affairs program Monday, Branstad said he believes tax cuts are vital to the state's economic growth. A 10 percent tax cut when he was governor earlier was “helpful,” Branstad said.

“But I don't think we can afford to do it all at this time,” he said.

He prefers to work on lowering commercial property taxes that are paid on 100 percent of the value of the property and replacing Iowa's graduated corporate income tax with a flat 6 percent rate.

Then “with a growing economy, I think in future years we can well reduce both the property tax and also the individual income tax,” Branstad said.

His warning is not likely to stop House Republicans from working on their 20 percent tax cut, Speaker Kraig Paulsen, R-Hiawatha, said.

“One thing we're unified on is that Iowans pay too many taxes,” Paulsen said. “What we haven't resolved completely is whether we should address this tax first or that tax first. So we're going to get them up on the table and talk about them and at some point make a decision.

He thinks lawmakers have a heightened sensitivity to property tax relief, the 20 percent income tax cut is an easier bill to write than a property tax relief bill.

“We'll get this out of the way and get the property tax relief going,” Paulsen said.

The House is expected to take up a school funding-related property tax bill Feb. 8 that call for the state to pick up 100 percent of the cost of K-12 school aid by phasing out over seven years the property tax levies for schools other than the uniform $5.40 per $1,000 assessed valuation property tax levy.

House File 9 would shift about $400 million to $550 million in costs from property taxpayers to the state general fund via the school foundation formula, which currently divides K-12 district per-pupil costs by drawing 87.5 percent from the state and 12.5 percent from property taxpayers.

In the current budget year, state aid to support elementary and secondary schools totals slightly under $2.5 billion, while $676.4 million in revenue is generated by the uniform $5.40 per $1,000 assessed valuation on property and $573.4 million in additional levies that make up the 12.5 percent share.