How will we pay for Iowa’s state government?

Last week, at a forum in Washington, D.C. sponsored by the CATO Institute, Gov. Kim Reynolds said she will push to eliminate Iowa’s personal income tax by the end of her current term in 2026.

With that, what has been a sketchy goal of some Republican lawmakers now has the backing of the governor and a timeline. But Reynolds’ objective raises a number of questions that have yet to be answered.

First among them, how can Iowa afford state government programs, services and the needs of Iowans without billions in revenue collected through income taxes?

During the current fiscal year, Iowa is projected to collect more than $5 billion in personal income taxes, or roughly half of all revenues flowing into the state general fund. Already, in 2026, a Republican backed tax cut approved in 2022 will create a 3.9 percent flat income tax, saving taxpayers $2 billion annually.

We’ve heard no plan whatsoever as to how even a portion of revenue lost by eliminating the income tax would be collected to lessen the impact on state spending. There’s been speculation that lawmakers would replace income tax dollars with a higher sales tax.

A sales tax increase would fall hardest on low-income workers, who pay a higher percentage of their income on sales taxes. Income tax cuts would primarily benefit wealthy earners. Consequently, Iowa’s tax system would become decidedly regressive.

Couple that with potential reductions in state services needed by lower income Iowans, and the cost of eliminating the income tax would fall squarely on those least able to pay the bill.

Then there’s the small matter of adequately funding public schools, state universities, Iowa’s mental health system, Medicaid health coverage, public health, public safety and a long list of other needs. Funding for these priorities is already stunted. It’s hard to see how cutting general fund revenue in half will make that situation better.

But backers of getting rid of the income tax often tout its potential for making Iowa a more attractive place to live and work. They point to growth in other states without income taxes, most of which have tourism industries, such as Florida and Wyoming, or are rich in valuable natural resources that can raise revenue, such as Texas.

Iowa, of course, has its own attributes. But it’s difficult to see how reducing potential investments in public education, clean water, state parks will help sell the state. We need an Iowa where people want to build lives, not just tax shelters.

(319) 398-8262; editorial@thegazette.com

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