Let's keep talking about taxes

Iowa dollars

Al Charlson is a North Central Iowa farm kid, lifelong Iowan, and retired bank trust officer. The Waverly Democrat previously published a version of this commentary on February 28.

Iowans get it. We understand that we have to pay for the public services needed to maintain the quality of life we want for ourselves and our neighbors. A fundamental responsibility of our elected leaders at all levels is to maintain a system of state and local taxes which will raise the funds needed and do so in a way that is fair.

As discussed in an earlier column, major changes now being considered in the Iowa legislature would fall short of raising the revenue needed. 

The nonpartisan Legislative Services Agency’s Analysis of Governor Kim Reynolds’ Budget Recommendations for Fiscal Year 2025 (which runs from July 1, 2024 through June 30, 2025) shows that if her plan were enacted, general fund spending would exceed tax revenue by $625 million. The governor intends to use surplus carryforward to pad the total available revenues to spend next year.

Meanwhile, Iowa Senate Republicans are advancing a plan (Senate Study Bill 3141) to completely eliminate Iowa’s individual income tax. In fiscal year 2023, net individual and corporate income taxes provided 32 percent of combined total state and local tax revenue. That’s a big hole to fill. Iowans need to ask GOP lawmakers how that would work.

Maintaining a combined state and local tax system in which all Iowans carry their fair share of the responsibility for paying for public services is a different, though related, challenge. Iowa’s longtime combined tax system has been reasonably balanced. Lower income Iowans who must spend all or most of their income to get by from month to month pay a higher percentage of their income in sales taxes. 

On the other hand, income tax is more closely related to ability to pay—higher income Iowans pay a higher percentage of their income on income tax. Property tax is somewhere in between. Typically, people with higher incomes live in more highly valued homes and pay more property tax.

An Institute on Taxation and Economic Policy analysis, released in January, showed that across a wide range of Iowa households ranked by household income (41st through 95th percentile), the average percentage of their income paid in state and local taxes was about the same – 10.5 percent to 10.7 percent.  (That also happens to be about the national average.)

Both the governor’s and Senate Republicans’ proposals are focused on reducing the taxes paid by the highest income Iowans. According to the Institute on Taxation and Economic Policy analysis, the Senate Republicans’ plan, fully implemented, would reduce the state and local tax responsibility of the highest income 1 percent of Iowans by about 4 percent of their income. That would leave their tax responsibility equal to about 3 percent of their income. 

By comparison the tax responsibility of the middle income 20 percent of Iowans would be reduced by about 2 percent of their income, leaving them with a tax responsibility equal to about 8.5 percent of their income. At the same time it would reduce total combined state and local tax revenue by over $5 billion, or about 32 percent. That would make it next to impossible to provide fundamental services in our state.

We’ve seen this movie before. Kansas enacted massive income tax cuts in 2012. The impact on all state services, especially schools and roads, was devastating. The Kansas Legislature repealed most of the 2012 cuts in 2017, even though they had to override the governor’s veto to do so. 

Iowa Senate Republicans are trying to cover that base, too. They are also proposing a constitutional amendment which would require a two-thirds majority vote in both houses of the legislature to raise individual or corporate income tax rates. The proposed amendment includes no such limitations on raising sales or property tax rates. Where would that take us?

These huge income tax cuts are clearly being pushed by some very high income Iowans with the help of Iowa and national special interest lobbying organizations. Iowans will have to ask their Republican legislators why they are prioritizing the concerns of these high-income folks over every other need in our state.

Editor’s note from Laura Belin: On March 5, Republicans on an Iowa Senate subcommittee advanced the proposed state constitutional amendment, Senate Study Bill 1142. An Iowa House subcommittee is set to move forward with the companion bill, House Study Bill 721.

About the Author(s)

Al Charlson

  • who are these top 1% Iowans

    Mr Charlson demonstrates that the income tax reform in Iowa would benefit the richest 1% Iowans. I wonder, who are these people, do we need more of them or fewer of them? Some rich Iowans like Harry Stine or Dennis Albaugh are associated with Big Ag, pesticides that give cancer, genetically engineered seeds that exhaust the soils, fertilizers that corrupt our streams and the Gulf of Mexico.
    Iowa certainly needs agriculture, but it would be smart to make it more sustainable. At the same time, we should adjust our tax policies and other State policies to attract other successful people than those related to Big Ag. These rich geniuses will not come for our beaches or dramatic sceneries, but there may be ways to attract higher-end industries, in manufacturing for example. One way would be to beef up the STEM departments of our State universities, in terms of brainpower and funding.

  • clearly a voting majority of Iowans don't get it

    they believe the ahistorical nonsense the antitaxers have been pushing for decades, here is a conservative (but not full on reactionary) take (why does IPR platform this conservative radio program?) on how we got here:

  • Contrast Iowa Legislature's Republican Majority with Oklahoma's

    Both Iowa and Oklahoma are Red State Trifectas – both have Republican Governors and control both legislative chambers. Both Oklahoma Governor Stitt and Iowa Governor Reynolds have proposed either a flat or eliminated individual income tax. The big difference is that the Republican leaders of the Oklahoma State Senate are not buying it and have raised concerns about future revenue shortfalls. It’s too bad the Iowa’s Republican legislative ‘leadership’ are blindly following Kim Reynolds down a path that leads to structural budget deficits – and, at the same time, wish to take away one of the state’s two largest sources of state revenue. In the end, state services will suffer – and so will the state’s AAA bond rating.

  • To Randy Bauer

    Thank you for the astute comment and the reality check.

  • To Karl M.

    Minnesota doesn’t have ocean beaches or dramatic scenery either, but that state does have a fair amount of natural landscape that wasn’t destroyed for agriculture. Iowa’s combination of tallgrass prairie, shallow lakes, and woodlands was dramatically beautiful to the first EuroAmerican settlers who wrote about it in their diaries. And it and used to support one of the best fisheries in North America. Your comment is right about Iowa’s current landscape being unlikely to attract rich geniuses, and that’s because of what Iowans did to the landscape. Iowa was not short-changed

  • Sorry, my cat decided to post my comment before I could finish and proofread it...

    I was going to end by saying that Iowa was not short-changed by nature when it comes to natural beauty. And we could restore some of that beauty by making Iowa agriculture more sustainable, as your comment recommends.

    Unfortunately, IDALS Secretary Mike Naig is uber-focus on saturated buffers, which are popular largely because they need very little farmland and don’t require farmers to make any actual improvements in how sustainably they farm. That approach will not get Iowa where it needs to be.