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Revenue Estimate Shows Tax Cut 'Triggers' May Not Be Met; Reynolds Calls For Removing Them

John Pemble
IPR file
Iowa’s revenue forecasting panel met Friday and estimated state revenue growth will be just shy of the level needed for more income tax cuts to kick in.

Iowa’s revenue forecasting panel met Friday and estimated state revenue growth will be just shy of the level needed for more income tax cuts to kick in.

Revenue would need to grow 4 percent next fiscal year to trigger more income tax cuts in 2023. But the latest estimate from Friday is 3.8 percent growth, potentially pushing tax cuts to 2024 or later.

The dollar amount trigger is projected to be met under Friday’s estimate. It predicts the state will bring in $8.39 billion in fiscal year 2022, passing the threshold for tax cuts of $8.31 billion.

Department of Management Director Michael Bousselot said it will ultimately depend on the actual tax revenue that comes in during Fiscal Year 2022, or on changes made by the legislature.

“In the year where we’ve seen tremendous uncertainty, I believe that giving greater certainty to what that tax code and taxes are going to look like moving forward would be beneficial,” Bousselot said.

Republican Gov. Kim Reynolds said in a statement the revenue estimate justifies removing the revenue growth “triggers” and allowing the tax cuts to take effect in 2023 regardless of revenue growth.

“Today’s forecast shows that Iowa’s economy is strong, and we can make it even stronger by ensuring that our historic 2018 tax cuts are fully implemented and giving Iowans certainty that they’ll see more in their paychecks,” Reynolds said. “We can easily do that by removing the unnecessary triggers, which are no longer needed and only stand in the way of our future growth.”

The Iowa Senate passed a bill unanimously Wednesday that would remove the triggers, and Senate Majority Leader Jack Whitver, R-Ankeny, echoed Reynolds in a statement Friday.

But a statement from the Iowa House Republicans did not mention the revenue triggers. It simply touted their “responsible, conservative budgeting.”

On Thursday, House Speaker Pat Grassley, R-New Hartford, did not commit to removing the triggers.

“The House Republican caucus felt very strongly about making sure that the triggers were in there,” Grassley said. “Obviously, it’s been a priority of the governor the entire session. The Senate now has taken action on it. And so that’s going to be part of the conversation throughout the rest of session.”

Rep. Chris Hall, D-Sioux City, said the revenue growth projection is “overall good news.”

“The state appears to be on the path to a strong recovery thanks in part to our resilience, and the huge increase in vaccinations and economic relief provided by the Biden administration,” Hall said.

Bousselot said the revenue estimate does not directly include the more than $1 billion Iowa is expecting to receive from the latest federal pandemic relief package. He said it does account for indirect impacts of that relief, like an expected increase in state sales tax revenue when Iowans spend their $1,400 stimulus checks.

But Hall accused Bousselot, the governor’s appointee to the Revenue Estimating Conference, of “coaching budget numbers for political gain and to trigger tax cuts” when he disagreed with another REC member’s lower revenue growth estimate.

The Iowa Legislature must use the revenue estimate from December to start putting together the state budget for fiscal year 2022, because it’s lower than the March estimate. This means lawmakers have about $8.26 billion to work with.

Katarina Sostaric is IPR's State Government Reporter