Unions, construction industry say ‘pump the brakes’ on Iowa tax cut

DES MOINES — Representatives for Iowa labor unions and construction industry urged lawmakers to hit the brakes on a proposal to lower the tax rates businesses pay to fund benefits for unemployed workers.

House Republican lawmakers on Thursday advanced House Study Bill 735 in order to gather more information about its potential impact.

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Rep. Dave Deyoe, R-Nevada, who chaired the House subcommittee, said he advanced the bill in order to seek a detailed fiscal analysis of the bill’s impact from the nonpartisan Legislative Services Agency.

The bill cleared the subcommittee 2-1, with Democratic Rep. Monica Kurth of Davenport opposed. Deyoe said the bill will be considered by the House Ways and Means Committee next week.

Deyoe said lawmakers want the Legislative Services analysis so they can be assured that when unemployment rises during a recession, business taxes won’t have to be raised to keep Iowa’s Unemployment Trust Fund solvent.

Bills must pass out of committee before receiving a Legislative Services fiscal note to create a more manageable workload for the agency.

“We don't know yet that the math works” Deyoe said. “So if the math doesn't work, we're not going to do it as is.”.

Gov. Kim Reynolds proposed the tax cut in January as part of a larger package of tax reductions.

Under her proposal, Iowa would cut the taxable wage base in half and reduce unemployment taxes by about 40 percent.

Under the bill, Iowa employers would pay a maximum rate of 5.4 percent on wages up to $18,000 per employee, as opposed to the current 7 percent on wages up to $36,000 per employee.

It also would reduce the number of tax tables from eight to four and reduce tax table rankings from 21 to nine, effectively cutting overall tax categories.

Reynolds’ office estimates the cut would save Iowa employers more than $800 million over five years.

“(W)e turned our unemployment system into a re-employment system. And it’s having the intended effect,” Reynolds said during her annual Condition of the State Address in January.

“Our unemployment rate remains low, we have the sixth highest labor force participation rate in the country, and Iowans are now spending on average less than 10 weeks on unemployment. … Because so many Iowans are drawing a paycheck instead of a government check, our unemployment trust fund is full — to the point where we can reduce the unemployment insurance payments that employers make by half.”

Opposition

Representatives for the Iowa Federation of Labor, AFL-CIO and IBEW Iowa State Conference worried that Iowa’s unemployment trust fund will face challenges in the long term if the economy takes a downturn and business tax rates don’t keep the trust fund alive.

Nick Laning, a lobbyist representing the union that represents electrical workers, said with recent layoffs by John Deere and the closure of the Tyson plant in Perry, now is not the time to make drastic changes to the state’s unemployment trust fund.

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“I know the economy looks good from the outside right now, but we're seeing some signs even in Iowa that we could have some issues,” Laning told lawmakers. “ … Maybe pump the brakes a little bit and say: ‘Let’s consider all the factors we have here before we do something that could have long-term effects.’ ”

The Iowa State Building and Construction Trades is registered against the bill.

Jon Murphy, a lobbyist representing the group, said state funding for infrastructure-related projects “is going to be seeing some challenges going forward.”

“And when that happens, we are able to invest less in those major maintenance things, which has an impact on … construction jobs and things like that,” Murphy said. “So having a healthy trust fund is important as we kind of anticipate these things, and then as we actually feel them going forward.”

Peter Hird, a lobbyist representing the Iowa Federation of Labor, AFL-CIO, cited a cut to unemployment benefits that lawmakers passed and Reynolds signed into law in 2022.

“Benefits that employees had were taken away,” Hird said. “And now we're seeing a tax cut for employers. Would just hate to turn things that are safety nets for employees and give it back to employers.”

Kurth, who voted not to advance the bill, echoed those concerns.

“I think that the Perry (plant) closing has to be something of a wake-up call to us,” she said. “And I also agree that we have already taken away benefits. Why are we now planning to give the employers additional money back?”

For the bill

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J.D. Davis of the Iowa Association of Business and Industry lobbyist told lawmakers the association backs the bill and the drive to get more information about its potential impact.

Davis, though, also expressed concerns about the long-term solvency and stability of the unemployment trust fund.

Reynolds tapped $700 million in federal pandemic relief funds to shore up the state's unemployment insurance trust fund and avert an increase in tax rates as pandemic-related layoffs provided a major hit to state unemployment funds.

“We want to make sure that an economic downturn can be survived and the fund is there for the purpose it’s there,” Davis said. “ … I think moving the bill is going to get you the information you need to know about next steps.”

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