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With Iowa’s GOP budget policy, you have to love subtraction
Understanding budget policy under the Golden Dome of Wisdom, now redder than ever, is really pretty simple. You just have to love subtraction.
Take Gov. Kim Reynolds’ proposed budget for Fiscal Year 2024, which begins July 1.
Under Iowa law, legislators can spend 99 percent of available general fund revenues estimated by the Revenue Estimating Conference in December. In FY 2024, available revenue under the spending limitation law is $10.38 billion, according to the nonpartisan Legislative Services Agency. That’ comes from income taxes, sales taxes, carried over surplus dollars and other assorted taxes.
But the governor’s budget plan appropriates $8.48 billion, or about 82 percent of available revenues. Reynolds subtracts nearly $2 billion in a large budget surplus at the end of FY 2024.
A large chunk of that surplus, $662.6 million, will flow into the Taxpayer Relief Fund. The fund was created to cover the budgetary cost of tax cuts. Under the governor’s plan, the balance in the Taxpayer Relief Fund would grow to $3.42 billion.
During the current 2023 Fiscal year, Republicans spent around 88 percent of available revenues, socking away more than $800 million. This has been the plan for several years now. Spend far less than what’s available, run up large surpluses, with the help of federal pandemic stimulus bucks, and send hundreds of millions of dollars to the Taxpayer Relief Fund.
If your top priority is cutting taxes, this makes a lot of sense. If you amass billions of dollars in extra dough you can plug budgetary holes caused by any potential loss of revenue. Curtailing state spending growth is a nice bonus.
But if your priorities are providing adequate funding to public schools, state universities, mental health care, state parks and other budget priorities, this sort of budgeting shrinks the pie of available funds. While funding slightly increases or stagnates, the stack of bucks to cover tax cuts grows.
What’s the practical effect? The governor has proposed increasing state aid to public schools in 2024 by $89 million, or 2.5 percent. That’s a small number, given the $2 billion planned surplus. But Senate Republicans are proposing an even smaller increase, 2 percent, although they insist it’s just a starting point. School leaders have argued they need at least a 4 percent increase to fund their operations amid continuing inflation. They’re not going to get it.
Instead, Republicans decided to spend $107 million next year to fund Education Savings Accounts to cover tuition for private school students. The cost of that program will grow to $345 million annually. So the budget pie of available dollars gets smaller.
As billions of dollars in new tax cuts take effect, and as Republicans come up with new ideas for reducing revenue, the pressure to build surpluses into the budget will grow and the pie will keep shrinking. It’s telling that the big Republican tax objective this year is cutting property taxes. Curtailing revenue for local governments won’t put any more pressure on the state budget. Sorry cities and counties.
We’re often told that we’re just one more big tax cut away from becoming an economic utopia, or maybe South Dakota, if that’s your idea of a utopia. But as I wrote last year, I’ve seen at least six bills declared to be the “largest tax cut in Iowa history” passed during my journalism career. Each brought the same promises of dynamic economic growth, while discounting the argument that strong schools, universities, civil rights protections and a clean environment are also strong selling points.
Some Republicans still want to eliminate the state income tax, which brings in roughly half of general fund revenue. Again, South Dakota is the model.
According to a Department of Revenue report issued in late 2020, all of the tax cuts, credits and exemptions approved by lawmakers over the past 30 years or so add up to $15.9 billion annually. That’s more than double the $7.1 billion in cuts on the books in 2005, and with more recent cuts, that big number has grown.
Many of these cuts were supported by lawmakers from both parties. And no doubt some of these tax changes have had positive effects. The point is it’s never enough. Conservative think tanks have endless ideas for how to cut more taxes and slice government spending. Iowa Republicans are listening.
And under the current regime, tax cuts are everything. State funding now makes up a larger share of public school funding, as part of an effort to reduce property taxes. That’s also the main reason why the state took over funding county and regional mental health services. We have billion-dollar surpluses to cover the holes left by waves of income tax cuts. Revenues already are being depleted by new cuts.
Apparently most Iowa voters approve of this approach, especially wealthy GOP donors who benefit from this brand of budgeting. They get their way on taxes, private school vouchers, slashed regulations and government inaction. They get many pluses, while the rest of us get subtraction.
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