State revenue growth to slow, but projections remain high

DES MOINES — Iowa’s state revenue is expected to drop off some in the next two years but remain at historic highs, according to a state panel charged with estimating yearly receipts.

The Revenue Estimating Conference on Thursday predicted a 2.7 percent drop in revenue in fiscal 2023, which began July 1, followed by a 0.6 percent increase in fiscal 2024. The drop comes mostly from a decrease in personal income tax revenue, reflecting tax cuts championed by legislative Republicans earlier this year.

Total state revenue for each year would remain above $9.5 billion under the projection, which would be historically high revenue and an increase from previous projections.

The estimates come on the heels of Iowa ending fiscal 2022 with a surplus of $1.91 billion, as well as $830 million in reserve funds and $1.06 billion in the Taxpayer Relief Fund.

Revenue in fiscal 2022 smashed the expectations the panel set in March, coming in at $9.8 billion, more than $600 million higher than the last estimate, and more than $1 billion higher than 2022.

The Revenue Estimating Conference projects personal income tax receipts in fiscal 2023 to be $5.53 billion, followed by $5.2 billion in 2024. Income tax receipts in 2022 were $5.78 billion.

Beginning in 2023, Iowa’s highest tax bracket will fall from 8.5 to 6 percent, and continue to fall until a 3.9 percent flat tax for all individuals is established in 2026.

Republicans celebrated the estimates as proof that their tax-cutting agenda is resulting in a strong economic outlook, contrasting the outlook with federal spending policies they say have hurt the national economy.

“Today’s projections confirm once again that Iowa’s competitive tax code is fully compatible with sustainable revenue and a resilient budget,” Gov. Kim Reynolds said in a statement. “Going forward, we’ll continue to exercise restraint with taxpayer dollars while prioritizing high-return investments in key priorities.”

House Appropriations Committee Chair Gary Mohr, a Republican from Bettendorf, said in a statement the projections show Iowa’s economy remains strong.

“Thankfully, our hard work to spend within our means, and fund Iowans’ priorities while allowing taxpayers to keep more of their hard-earned paychecks and retirement income has ensured that our economy remains strong and Iowans are better equipped to handle rampant inflation than many of our peers in other states,” he said.

Democrats, however, said the decrease is a worrying sign that Republicans’ tax policies are hurting the state’s budget.

“Temporary federal pandemic aid propped up Iowa’s budget,” Democratic Sen. Joe Bolkcom, the ranking member of the Senate Appropriations Committee, said in a statement. “Revenues will fall sharply as Iowa Republicans’ massive tax for the wealthy and greedy corporations take effect. When that happens, Senate Democrats will fight to protect property taxpayers and Iowa’s local public schools.”