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Iowa GOP leaders say the state is bringing in enough money to justify deeper tax cuts

the three members of the revenue estimating conference sit at a table in the iowa capitol
John Pemble
Revenue Estimating Conference members David Underwood, Kraig Paulsen, and Holly Lyons met at the Iowa Capitol Monday.

Iowa Gov. Kim Reynolds said she will “explore significant tax cuts” after Iowa’s revenueforecasting panel estimated Monday the state will bring in more money over the next few months than previously thought.

The Revenue Estimating Conference is predicting the state will collect 3 percent more money in tax revenue than last fiscal year, up from its October estimate of 1.5 percent growth.

Iowa Department of Management Director Kraig Paulsen, who was appointed by the governor, said he’s confident that Iowa’s economy is strong, and that state revenue will keep growing.

“The one thing I unquestionably know is that at the end of Fiscal Year 2022, which is six-and-a-half months from now, there’s going to be a pretty significant ending balance,” Paulsen said. “And so I think the general assembly and the governor are in a position to do some really good things for the taxpayers of Iowa.”

Paulsen said there could be more than $2 billion in the state’s Taxpayer Trust Fund by the end of this fiscal year.

State Republican leaders have said this means they should cut personal income taxes again during the legislative session that starts Jan. 10, with some GOP senators saying they want to start the process of eliminating the state income tax entirely.

In a statement, Reynolds said Monday’s estimate “confirms a significant overcollection of Iowa taxpayer funds.”

“Iowa’s economy continues to show very positive signs of growth,” Reynolds said. “I will continue to fight to return these funds to the hands of hardworking Iowa taxpayers and explore significant tax cuts this legislative session that will make Iowa one of the most competitive states in the country. This overcollection of taxes is unethical and it must end.”

The forecasting panel is predicting revenue will grow at a lower rate of 1.7 percent in the fiscal year that begins July 1, 2022, to about $9.2 billion. That’s the number Reynolds will use as the basis for her next state budget proposal that will be released in January.

Holly Lyons, fiscal division director of the nonpartisan Legislative Services Agency, said the major growth in state tax collections over the past year was largely due to federal stimulus payments and pent-up consumer demand. She said that means revenue growth will likely slow down in the spring.

Lyons said theincome tax cuts that were passed earlier this year will also cut into the next fiscal year’s revenue because they take effect in 2023.

“Despite the current robust growth, there are some headwinds facing the Iowa economy,” Lyons said. “These include uncertainty about inflation, the persistent Iowa labor shortage, and slow employment growth that we mention each time we meet, and the unknown impact of the omicron variant and future variants of COVID-19.”

Lyons said the number of COVID-19 deaths and hospitalizations “must come down for the economic picture to finally stabilize.”

While Republican leaders credit their own tax and budgeting policies for the state's revenue growth, Democrats credit President Joe Biden because of the massive amount of pandemic relief funds that flowed into the state from the federal government this year.

Sen. Joe Bolkcom, D-Iowa City, called on the Republican-led legislature to use the surplus revenue to pay for “tax cuts targeted to middle- and lower-income Iowans and smaller businesses” and “significant investments in job training and apprenticeships, paid family leave, and affordable child care and housing.”

“Contrary to what the governor and legislative Republicans are saying, more corporate tax giveaways and tax cuts for Des Moines millionaires will only make their workforce crisis worse, especially in rural Iowa,” Bolkcom said in a statement.

Republican lawmakers have not yet announced a specific plan for tax changes.

Katarina Sostaric is IPR's State Government Reporter