Reynolds tax proposals will encourage growth
- John Hendrickson is director of policy for the Iowans for Tax Relief Foundation.
- Jonathan Williams is executive vice president for policy and chief economist at the American Legislative Exchange Council.
Governor Kim Reynolds and free-market lawmakers are working to make Iowa a pro-growth leader.
Tax reform is a priority for 2022, and rightly so. Even after successful tax reforms in recent years, more work is needed to provide greater tax relief and make Iowa’s tax code more competitive. Iowa is in a strong position to enact substantial, growth-friendly tax reform in 2022. Following years of fiscal conservatism, Iowa’s fiscal base is strong. In his State of the State Address, Reynolds proposed a comprehensive tax reform plan that calls for a fixed income tax of 4% by 2026, a phased reduction in corporate taxes to 5.5 % and the repeal of state taxes on retirement income. These are ideas that would dramatically improve Iowa’s economic prospects.
Reynolds and the Conservatives in the Legislature deserve credit for their prudent budgeting. Even before the COVID-19 pandemic, the Iowa tax house was in great shape. As Reynolds kept Iowa’s economy open during the pandemic, the economic recovery was quick. Iowa was one of the states that passed a tax reform bill in 2021. This was the result of conservative tax policies.
ANOTHER VIEW: Under the Iowa system, a 4% income tax is neither flat nor fair
Currently, the Iowa budget is in a $1.24 billion surplus and the reserves are full. As a result, the Taxpayer Relief Fund will have over $1 billion available for income tax cuts, and that is expected to increase to nearly another $1 billion by the end of the year. ‘year.
“We have nearly a billion dollars in the rainy day fund. Another billion in the taxpayers’ trust fund. Another projected surplus of $1 billion in the current budget year, and a huge structural surplus, as we brought in nearly $1 billion more than we spent this year,” said said Senate Majority Leader Jack Whitver, describing Iowa’s healthy fiscal outlook.
The revenue estimate conference provided healthy revenue projections for fiscal years 2022 and 2023. While the temporary federal stimulus dollars that flooded Iowa from the federal government certainly played a role, the surplus of the ‘Iowa is the result of conservative budgeting by the Legislature.
The path to sound tax reform begins with prudent spending decisions. To be sure, the substantial surplus and good revenue outlook pave the way for tax rate cuts, but policymakers will also need to continue to properly prioritize spending.
As House Speaker Pro Tem John Wills said, “Now is the time to make Iowa more competitive through transformational tax reform with the excess funds in our coffers. Tax reform will make Iowa a more competitive state but, more importantly, it is the right thing to do for the citizens of Iowa.
Reynolds understands that Iowa is in economic competition with other states. In the 14th edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Iowa ranks 33rd. .
Data from both rich and poor states confirms positive migration trends to low-tax states — and especially the nine states that do without personal income taxes altogether. States with no income tax outperformed their high-tax counterparts in terms of key economic measures of success such as wage growth and population growth. Of the nine states with no personal income tax, eight experienced positive net inward migration in recent 2021 census estimates, totaling hundreds of thousands of new taxpayers for those states. On the other side of the equation, many states with the highest personal income tax rates, such as New York and California, experienced massive net inward emigration last year.
A serious economic challenge facing Iowa is the need for more people. Iowa’s workforce challenges can be greatly aided by a more competitive tax climate that would help attract more taxpayers.
Policymakers can build on the significant tax reforms approved in 2018 and 2021 by lowering personal and corporate tax rates. Iowa can look to states such as North Carolina and Indiana, among others, which have cut rates while addressing government priorities. Several weeks ago, Democratic North Carolina Governor Roy Cooper signed into law the budget for the Republican legislature that will eventually reduce their fixed income tax to 3.99% and completely eliminate their corporate income tax.
Since 2018, Iowa has made significant progress in implementing tax reform. This tax reform, balanced with conservative budgeting, created economic growth and opportunity in Iowa. Reynolds is putting Iowa taxpayers first with his 4% flat tax proposal.
John Hendrickson is director of policy for the Iowans for Tax Relief Foundation. Jonathan Williams is executive vice president for policy and chief economist at the American Legislative Exchange Council.