Iowa’s revenues are expected to decrease by hundreds of millions of dollars in the next two fiscal years due to accelerated tax cuts passed by state legislators in the 2024 legislative session.
The tax cuts were championed by Iowa Gov. Kim Reynolds, a Republican, and Republican legislative leaders after the Revenue Estimating Conference announced better-than-expected tax revenues for fiscal year 2023, the current fiscal year which ends June 30, 2025.
In 2022, Reynolds signed a 3.9 percent flat tax into law that would have gone into effect in 2026, but Republicans accelerated the cuts when the governor signed another tax cut into law. Under the 2024 law, Iowa would have a flat 3.8 percent tax rate starting January 1, 2025.
Under the accelerated tax rates, Iowa’s revenues will decrease by nearly $428 million from fiscal year 2025 to fiscal year 2026. The panel projects the state will bring in roughly $8.7 billion in revenue in fiscal year 2026, which is more than $100 million less than the state’s appropriations for fiscal year 2024 which sit at $8.91 billion.
“The REC projections are what we expected due to our responsible, growth-oriented fiscal stewardship,” Reynolds said in a statement on Thursday. “Iowa’s conservative budgeting practices and commitment to shrinking the size and scope of government have once again put our state in a strong financial position just as our low, flat income tax rate of 3.8% takes effect next year for every Iowa taxpayer.”
Reynolds is required by law to use the panel’s estimates when preparing her budget and can only spend 99 percent of estimated revenues.
Department of Management Director Kraig Paulsen, at the Revenue Estimating Conference’s Thursday meeting, said that the declining revenues are directly attributable to the major tax cuts Republicans passed and signed into law.
However, Paulsen said that the state would see growth in its revenues if it weren’t for tax cuts largely due to growing wages and economic conditions in Iowa. But still, Iowa is in good financial condition because of conservative fiscal stewardship under Reynolds, Paulsen said.
“The state continues to be in a strong financial position, in no small part, because of this continued spending discipline,” Paulsen said during the panel’s meeting on Thursday.
The state currently boasts a multi-billion dollar surplus, $961 million in reserve funds, and more than $3.75 billion in the state’s Tax-Payer Relief Fund.
In a statement on Thursday, Iowa Senate Majority Leader Jack Whitver, R-Ankeny, said the panel’s projections confirm that the tax cuts legislators made last session are fiscally sustainable.
“For too long, [the] state government has been taking too much money from working Iowans,” Whitver said. “Years of historic tax cuts have reduced the amount of money confiscated from Iowans. Even with those cuts, the state budget maintains enough revenue growth to continue responsible increases in education and ensure law enforcement has the resources they need to keep us safe.”
State Sen. Janet Petersen, D-Des Moines, the top Democrat on the Senate Appropriations Committee, called for transparency with Iowa’s Education Savings Accounts and their unlimited expenditures.
“Iowa’s revenues are still declining,” Petersen said in a statement Thursday. “With the floodgates set to open on the Republicans’ private school voucher program, it’s more important than ever that Iowans are able to see where their money is being spent, especially as most Iowans aren’t feeling any positive effects from the Republican majority’s budgeting priorities.”