Iowa Gov. Reynolds pitches 4% income tax

DES MOINES — A four-year transition to a flat state income tax rate of 4 percent, shortening the time Iowans could claim jobless benefits and a new plan for devoting public K-12 aid for private school tuition are among the proposals introduced Tuesday night by Iowa Gov. Kim Reynolds in her charge to state legislators.

The Republican governor, who faces re-election this year, unveiled the proposals during her annual Condition of the State address to the Iowa Legislature. She delivered her remarks in the Iowa House chamber at the Iowa Capitol.

The state taxes on all Iowans’ income would be reduced every year until resting at 4 percent in 2026, under Reynolds’ proposal. The governor’s office said that would make Iowa’s state income tax burden the fifth-lowest in the country. The state, according to the governor’s office, currently has the 16th-highest burden.

“Flat and fair,” Reynolds said.

When fully implemented, the income tax reduction would translate to the average Iowa worker paying $1,300 less annually in taxes, the governor’s office said. That is in addition to, the office said, $1,000 in average savings that already are expected from income tax reductions passed by the state in 2018.

“That’s money that can be reinvested into our economy and used to promote the prosperity of every Iowan,” Reynolds said. “Yes, we’ll have less to spend once a year at the Capitol, but we’ll see it spent every single day on Main Streets, in grocery stores, and at restaurants across Iowa. We’ll see it spent in businesses instead of on bureaucracies.”

The proposal would reduce state revenues by roughly $1.6 billion in 2023, the governor’s office said. The most recent state budget was just more than $8 billion.

The governor’s office said if state revenue and spending continue to grow at their recent averages of 4 and 2 percent respectively, the 4 percent flat income tax would not force any budget cuts. The office also said the plan does not require any use of the state’s taxpayer trust fund, which is currently flush with $1 billion.

Democrats did not embrace the governor’s tax plan, arguing it would disproportionately benefit the wealthiest Iowans.

“It’s going to shift the tax burden from the wealthiest people in our society who can afford to pay their fair share to middle class families,” Zach Wahls, the Democratic Senate Minority Leader from Coralville said after the speech.

Reynolds’ proposal also would phase out all state taxes on retirement income.

The governor’s tax plan requires legislative approval. Some legislative Republicans have proposed phasing out the state income tax entirely.

Unemployment changes

Reynolds also proposed making more changes to the state’s unemployment system as a means to address Iowa’s worker shortage. According to her staff, Reynolds will create a separate division in the state’s workforce development agency to work with businesses that are searching for employees.

Reynolds also proposed cutting the amount of time that Iowans can receive unemployment benefits — from 26 weeks to 16 weeks — and lowering the new salary offers that Iowans receiving benefits must accept.

Currently, Iowans receiving benefits must accept a job offer if it pays a certain percentage of their previous salary. Reynolds will propose lowering those thresholds as a means of getting unemployed Iowans to work sooner.

Reynolds said the current 26 weeks to receive benefits is “frankly … more time than necessary,” and the salary threshold reduction will ensure “that those collecting unemployment can’t turn down suitable jobs while living on taxpayer funds.”

https://www.youtube.com/watch?v=o2HDUtWWEzw

Democratic legislative leaders said they do not believe Reynolds’ proposals will solve the state’s worker shortage.

“We’ve been looking at affordable housing, affordable child care, looking at making sure Iowa’s a welcoming state and we build public education,” Jennifer Konfrst, the Democratic House minority leader from Windsor Heights, said after the address. “We didn’t see anything tonight that was bold or truly going to address the workforce crisis.”

Education funding and policy

Reynolds’ budget proposal includes a 2.5 percent funding increases each for K-12 schools, community colleges and the state’s three public universities.

“These things have been undercut and underfunded for years,” Konfrst said of K-12 public school funding. “We’re going to need to look at what the budget impact would be.”

Reynolds also proposed using federal stimulus funding on a one-time $1,000 retention bonus for all Iowa teachers who remain at their school for another year.

https://www.youtube.com/watch?v=j7JWYx6l9sA

She also proposed an expansion of public funding for private school tuition. Her proposal would make $5,340 scholarships available to any public school student who lives in a household at or below 400 percent of the federal poverty level. That equates to, for example, a household of three with total income of $87,840 or less, or a household of four with total income of $106,000 or less.

The $5,340 figure is based on 70 percent of state aid per student. The other 30 percent, or roughly $2,300, would go to a state fund and be reallocated to smaller school districts.

Reynolds’ previous private school tuition proposal failed to pass in the Iowa House in part due to concerns that it would cause financial stress on small, rural school districts.

“It sounds like, from my conversations with the governor and her office as well as tonight, that she’s trying to find that balance,” Pat Grassley, the Republican House speaker from New Hartford, said after the address. “So we’ll see how it’s received (by House Republicans). … I think she’s tried to address some concerns that she heard from last session.”

The program initially would be capped at 10,000 students, the governor’s office said.

In response to recent concerns from parents and some Republican state lawmakers about books in school libraries that they deem to have graphic or explicit material, Reynolds delivered strong words in her speech but offered a modest policy proposal.

Reynolds’ proposal would require all schools to publish online all class materials, including textbooks, syllabuses and standards, as well as a comprehensive list of books available in the school’s library. Schools are already required to have that information available; Reynolds’ proposal would require them to publish that online.

Her proposal also would add a provision that if a school district does not respond to a parent’s complaint about any books or material within 30 days, the complaint goes before the state education department. State funding would be withheld from any district that does not comply with the new requirements.

“We live in a free country with free expression. But there’s a difference between shouting vulgarities from a street corner and assigning them as required classroom reading. There’s a difference between late-night cable TV and the school library,” Reynolds said. “If school boards and administrators refuse to understand that — if they believe the classroom is about pushing their worldview — then we’re on the wrong path.”

https://www.youtube.com/watch?v=19eslzBhXQ8

The books that have been flagged by some parents and lawmakers typically are about LGBTQ characters or written by LGBTQ authors and describe sexual encounters in brief passages.

Reynolds also, according to her office, is proposing a requirement that all students pass a citizenship test in order to graduate from high school.

Ethanol mandate

Reynolds also tweaked from last year and will reintroduce ethanol legislation. Her new proposal will require all retailers with compatible equipment to offer the E15 ethanol blend by 2026 — a lower 10 percent blend is most common now — and require that all newly installed or upgraded infrastructure be E85 or B20 compatible.

State budget

Reynolds proposed an $8.2 billion budget for the fiscal year that begins July 1. Her proposal would leave $960 million in the ending balance and all the state emergency and reserve accounts full.

Most state agencies would have status quo funding, with the exception of an $86 million increase in health and human services funding — $71 million of which would go to increased mental health care funding — and an $11.6 million combined increase in funding for the justice and judicial systems.

No agency would be forced to reduce spending, the governor’s office said.

Comments: (515) 355-1300, erin.murphy@thegazette.com