Gov. Reynolds' tax swap plan to hike sales tax, lower income tax will test Iowa's GOP mandate

State Senate leader unsure of sales tax increase

Chairman of the Iowa Republican Party Jeff Kaufmann responds Oct 3, 2019, to a question during The Gazette's Iowa Ideas
Chairman of the Iowa Republican Party Jeff Kaufmann responds Oct 3, 2019, to a question during The Gazette’s Iowa Ideas conference. (Andy Abeyta/The Gazette)

DES MOINES — Statehouse Republicans say Iowa voters this month gave them a mandate to continue their conservative agenda, but that may not extend to Gov. Kim Reynolds’ Invest in Iowa plan that includes a state sales tax increase to help fund the initiative.

While Republicans tightened their grip on the Legislature by expanding their lead in the Iowa House to a 59-41 margin and held their 32-18 edge in the Iowa Senate, few if any of the winners campaigned on a pledge to support the governor’s tax swap plan to generate money for mental health, the environment and other priorities while producing a net income and property tax decrease.

Reynolds’ Invest in Iowa package did not move to the forefront of the 2020 election stage even after she told The Gazette’s Iowa Ideas conference on Oct. 15 that she “definitely” planned to pursue it during the upcoming 2021 session.

The proposal did not receive a mention in the myriad campaign ads that bombarded Iowans incessantly through the fall months.

That, and ongoing financial uncertainty tied to the COVID-19 pandemic, has raised skepticism that boosting Iowa’s 5 percent baseline sales tax will happen during the 2021 session. But majority Republicans insist that more tax reform in some form will.

Plan: 1% sales tax increase with 10% income tax cut

The governor’s multipronged Invest in Iowa Act sought a 1 percent sales tax increase while cutting state income taxes by 10 percent, funding water quality efforts and easing local property taxes by shifting mental health costs to the state and phasing down property tax levies.

The plan — which she said amounted to an overall tax reduction — would generate about $540 million more a year for the state. Of that, $172 million would go to natural resources, conservation, outdoor recreation and water quality improvement, while over $80 million a year would be earmarked for mental health care.

Jeff Kaufmann, chairman of the Republican Party of Iowa, who attended about 50 fundraisers leading up to the Nov. 3 election, said he heard candidates advocate for tax cuts, mental-health funding and environmental projects but not combined in the context of the governor’s Invest in Iowa approach.


“It’s a complex plan. You cannot fit that into a 30-second commercial. You just can’t,” said the GOP chairman, a former state representative who noted that candidates usually shy away from politically sensitive topics that include a sales tax increase as an element when wooing voter support.

“As it’s packaged right now, I don’t know that that issue was necessarily ready-made for a campaign environment,” he said. “I actually think that issue is more likely to come up after an election when you have a little bit more time, when people are expecting you to talk in detail and even dig up some of the minutia. I wouldn’t read anything into the fact that it was not mentioned in campaigns just because of the complexity of the issue.”

The arrival of COVID-19 in Iowa last March “just took the knees out from under that initiative,” Kaufmann said.

But now that the election is over, he said he expected Reynolds to employ her powers of persuasion to educate and enlist Iowans’ support if she plans to pursue the Invest in Iowa approach again when the new Iowa General Assembly convenes Jan. 11.

“I don’t think we really will have a gauge as to where that issue is going to go until Kim Reynolds has had a crack at selling it because she can change hearts and minds on issues, especially when they are heartfelt,” said Kaufmann.

Leaders say they’ll need more time

Newly reinstalled GOP leaders — House Speaker Pat Grassley, R-New Hartford, and Senate Majority Leader Jack Whitver, R-Ankeny — said they are early in the process of orienting newly elected members and probably won’t finalize priorities until after they get tax collection projections for budgeting next month from the state Revenue Estimating Conference.

Grassley, who noted he didn’t run on the Invest in Iowa approach in his successful reelection bid, said it will take some time to bring 14 new House members up to speed on a lot of topics and the governor’s tax-swap plan was an issued that got waylaid by the coronavirus epidemic just as legislative attention was shifting to tax and spending policies.

“Our economy is still fragile with the pandemic going on, but we believe that the policies we put in place the last four years to help businesses, reduce regulations, get people the skills they need for jobs will pay off when we’re trying to rebuild this economy,” noted Whitver.

“It’s a little too early for specific pieces,” he added. “As long as I’m the leader, as long as we’re in the majority, tax reform is going to be on the agenda. We’ve taken several steps forward with our tax climate in the state of Iowa but it’s not as good as it needs to be and so we’re always continue to work on that.”


At the same time, Whitver said he expects legislators and Reynolds will take a cautious approach to budgeting as they look for ways to help fund new mandates for adult and children’s mental health programs, educational and health care needs and other spending priorities as well as gauge the capacity for more tax cuts.

“I haven’t had any conversations with the governor on what her proposal this year is going to look like — if it’s going to be the same or if it’s going to be different,” said the Senate majority leader.

“I would say the sales tax increase was the part of the Invest of Iowa plan that had the biggest challenges and, as of right now, I don’t believe we would have the votes for that. But we’re still a brand-new caucus. We haven’t even met, we haven’t even talked about details.”

Investment needed for counties to meet mental health mandates

Jamie Cashman, government relations manager for the Iowa State Association of Counties, said his organization does not anticipate that a sales tax increase will be implemented but there still is a need for a sizable state investment and more spending flexibilities for counties to meet the new mental health mandates.

The association’s officials say the property tax levy cap that has been in place since 1996 is creating conflicts within multicounty regions in meeting a significantly higher demand for core mental health services — especially since the pandemic hit — even with the addition of about $40 million in federal CARES Act money. They also would like to see state elective leaders delay or eliminate a requirement to limit county “carryforward” fund balances to 40 percent that is impeding service delivery.

“We have to be realistic,” Cashman added. “I don’t foresee that there will be a plan putting forth an increase in the sales tax but if there are other ways to fund the system that we believe could be beneficial to counties and regions, we’d be all ears.”

Peggy Huppert, Iowa executive director for the National Alliance on Mental Illness, said she heard a lot of legislative candidates campaign to provide a sustained funding stream for new mental health commitments so she fully expects them to follow through on those promises — especially since COVID-19 has both dramatically increased the incidents of anxiety and depression and “laid bare the lack of crisis emergency services” in Iowa.

“Enough talking, time for action,” said Huppert.

House Democratic Leader Todd Prichard of Charles City said he did not hear Reynolds’ Invest in Iowa proposal discussed on the 2020 campaign trail, so minority Democrats will wait to see what agenda the governor lays out in her Condition of the State address and how GOP legislators proceed.

“We’ll definitely want to be have a voice in that conversation in terms of improving the water quality in the state and making sure that we can deliver mental health and other forms of health care. Those priorities fall in line with what we’re doing,” said Prichard. “It’s how we get there. I think anytime you talk about raising sales taxes, we want to be cautious that we’re not shifting the burden inappropriately or unfairly to certain taxpayers. So we want to make sure that any changes are fair and just.”


Iowa still has a health care system that is struggling and people need skills, training and access to good-paying jobs, Prichard noted. He also stressed the need for funds to bolster Iowa’s public education system.

“We’re obviously going to be willing to work with Republicans where we can, regardless of the election,” he said. “We’re all charged to do the same thing and that’s to move the state forward and to work together.”

Grassley said Republicans are committed to making 2021 decisions in the context of maintaining a sustainable spend plans based on budgeting principles that helped build a $300 million state surplus in the midst of a pandemic.

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