Reynolds Calls For Income Tax Cuts To Cancel Out Sales Tax Increase

Jan 14, 2020

Iowa Gov. Kim Reynolds is proposing to raise the state sales tax by one cent as one of her legislative priorities for 2020, but she wants it to be offset by a cut in income taxes.

Reynolds announced the plan in Tuesday's Condition of the State Address. Under the proposal, three-eighths of the sales tax increase would go into the Natural Resources and Outdoor Recreation Trust Fund which was approved by voters in 2010. Reynolds, a Republican, said she wants most of the remaining revenue to go toward new income tax cuts.

“These investments will not only aid our conservation efforts, they will improve our quality of life and help us retain and recruit a new generation of Iowans,” Reynolds said, standing before a combined session of state senators and representatives in the House chamber.  

According to an analysis by the Legislative Services Agency, a penny increase to the state sales tax would give lawmakers an additional $182.6 million in revenue to work with in the next fiscal year.  But the governor’s proposed income tax cut and other adjustments would then leave them with about $7.3 million less overall.  

Senate Minority Leader Janet Petersen, D-Des Moines, said raising sales taxes while reducing income taxes could result in a greater share of state revenue coming from people who can least afford to pay.

“(I’m) very concerned when you’re raising sales tax and reducing income tax that we don’t want that to hurt our retired Iowans and low-income Iowans,” Petersen said following Reynolds’ speech. “So I’m wanting to take a close look at how that will pan out.”

In addition to cutting income taxes, Reynolds said in her address that she wants to also potentially reduce property taxes by having the state take on about 70 percent of the costs of the county-funded mental health system. 

“By establishing a dedicated and stable fund for mental health, we will give hope to so many who are suffering in silence,” Reynolds said. “It’s a promise we’ve made, and it’s a promise I intend to keep.”

Petersen said funding mental health from the state’s general fund would only be reliable if it comes from a protected funding source, otherwise, she said, property taxes would provide a more stable budget.

“If she’s going to get rid of a huge chunk of that out of property tax, I think Iowans need some assurances besides just what she’ll do,” Petersen said. “The last thing we need is more instability in the mental health system.”

Overall, the governor’s proposed budget would increase general fund spending by 4.4 percent, including a 2.5 percent increase in funding to public schools.