How have last year's tax cuts affected Iowa's state revenue? What the numbers show:

3 minute read

Katie Akin
Des Moines Register

As Iowa Republicans consider another round of tax cuts, members of a state financial panel say that last year's income tax overhaul had a less dramatic fiscal impact than they originally predicted.

Lawmakers passed a bill in 2022 to eliminate retirement income tax and to lower Iowa's top income tax rate until all Iowans pay a 3.9% flat tax starting in 2026. The nonpartisan Legislative Services Agency expects those changes will reduce state revenues by about $1.9 billion when fully phased in.

The three-member Revenue Estimating Conference said Friday that Iowa will bring in less money this year than it did last year due to the tax cuts, but the reduction is not as severe as the panel predicted in December.

How much revenue will Iowa lose in the next 2 years?

The Revenue Estimating Conference predicted the state will bring in $9.75 billion in the current fiscal year that ends June 30. That would be a net revenue decrease of 0.5% from fiscal year 2022, when the state collected $9.8 billion.

The panel predicts Iowa revenue will continue to decline in fiscal year 2024, which begins July 1. They project a 1% decline from the current fiscal year, resulting in about $9.65 billion in revenue.

Kraig Paulsen, director of the Iowa Department of Revenue, said the negative growth this year is coming from the 2022 tax cut.

"There was no organic negative growth," he said. "Actually, all the organic growth is positive."

Friday's projection is higher than the panel predicted in December. Then, they anticipated only $9.62 billion in revenue for fiscal year 2023, which would be a decline of nearly 2% from the previous year.

"Regardless of those cuts, we're still seeing growth across the board," Paulsen said.

How does that revenue loss affect Iowa's state budget?

The Iowa Legislature will create a state budget over the next two months using the panel's predictions.

Lawmakers will use the lower estimate from December to craft their budget for next year. By law, Iowa's state budget cannot exceed 99% of state revenue each year.

Gov. Kim Reynolds made her budget proposal in January using the December estimate. She recommended a total appropriation of $8.48 billion for fiscal year 2024 more than $1 billion less than the projected revenue that year.

Will Republicans keep cutting taxes in Iowa?

Republican leaders are considering bills to reduce property taxes and eventually eliminate the state income tax. If passed, those could result in even less revenue for the state in future years.

Senate Majority Leader Jack Whitver did not advocate for specific tax changes in a Friday statement, but he celebrated the revenue estimates for the coming years.

“Today’s REC meeting confirms what Senate Republicans have been saying for years," Whitver said. "Historic tax relief, pro-growth policies and conservative budgeting are the right policies for this state."

More:Senate Republicans advance bill to eventually eliminate Iowa's income tax. Here's the plan

Democrats opposed last year's tax cuts, arguing that a flat tax benefits wealthier Iowans and the loss of revenue will make it harder for the state to fund essential services in the future.

On Friday, Rep. Timi Brown-Powers, the ranking Democrat on the House Appropriations Committee, said budget estimates show the "tax cuts designed to only benefit the wealthiest Iowans and corporations are leaving working Iowans behind."

How does Iowa state revenue compare with past years?

The projected decline in state revenue comes after several years of rapid growth. Iowa's revenues increased by 11% and then another 11.4% in the previous two fiscal years.

That has led to a significant surplus in the state budget. The state reported a $1.91 billion surplus in September, up from a $1.24 billion surplus the year before.

Reporter Stephen Gruber-Miller contributed to this story.

Katie Akin is a politics reporter for the Register. Reach her at kakin@registermedia.com or at 410-340-3440. Follow her on Twitter at @katie_akin.