Tax cuts: real math, real harm

Iowans and the future of our state just took a licking.

We might not see it fully for a couple of years, but that’s the impact of massive tax cuts that will whack 40 percent off the income tax, the mainstay of funding for state services for all Iowans.

And the cuts are so highly skewed in favor of those at the top that it is breathtaking.

Many Iowans will see absolutely no benefit while fully 82 percent of the tax savings go to the top one-fourth of taxpayers, with income over $100,000. The average millionaire will save $62,000 a year. For those in the middle, with incomes between $40,000 and $60,000, the savings will average just $300 — that’s about six dollars a week.

Almost 4 in 10 Iowa taxpayers — the majority of those with income under $40,000 — will get nothing at all, according to the Iowa Department of Revenue.

When fully phased in by 2026, the bill will cut $1.9 billion from general fund revenues. For perspective, the entire state general fund budget this year is about $8.2 billion, with over half going to education: community colleges, the three public universities, and state aid to K-12 schools. The rest funds all the other services Iowans depend on: health care, infrastructure, public safety, state parks and recreation, child welfare, enforcement of labor and environmental regulations.

Right-wing activists Chris Hagenow and Grover Norquist offered up their usual nonsense to defend these cuts in Tuesday’s Gazette. Norquist is well-known nationally for his strident promotion of tax cuts, aimed at corporations and the rich, followed by drastic cuts to public services.

The tax bill just enacted in Iowa is just the latest and greatest in a long string of tax cuts aimed at those goals.

Ironically, the success of the Democrats’ pandemic legislation has allowed Iowa Republicans to make such a massive dent in revenues without immediate consequences. The current budget surpluses are largely the result of the stimulus checks, the increased child tax credit and child care credit, and the unprecedented pandemic unemployment compensation provided over the past two years.

These supports to the Iowa economy will wane and the surpluses will erode, assuring a need for substantial budget cuts by future legislatures.

It is simple math. Removing nearly a quarter of state revenue will harm education. Already squeezed, school funding will not keep pace with inflation, and will fall below what is needed to provide quality education and competitive pay for teachers.

The state share of postsecondary education funding has fallen from two-thirds to one-third in 20 years; it will continue to fall and tuition will rise, leaving parents and students with higher bills and higher debt. Funding for other needs — mental health, affordable child care, water quality — will be scarce.

If we want Iowa to be competitive for workers, for teachers, for nurses, for families with children, for college grads — and, yes, for business — we need to focus on what we offer to make Iowa a place to live and raise a family, with opportunity in vibrant, healthy communities. Iowa taxes already were competitive overall and for business; these massive tax cuts will make us less competitive, following the path of Kansas where income tax cuts led to budget crises, slower growth, and out-migration.

Sitting on a billion-dollar surplus, the Legislature could have strategically funded public education, affordable housing, mental health, better water quality, and child care access. Instead, they chose tax cuts that will cost Iowans dearly, at least those who stay.

Peter Fisher is research director at Common Good Iowa, a research and advocacy organization in Des Moines and Iowa City. pfisher@commongoodiowa.org