Iowa revenue expected to dip slightly, and stay down, as tax cuts kick in
Iowa is expected to take in slightly less revenue in the current fiscal year than it did last year, and the same amount again in 2024, a state panel predicted Wednesday.
The dip in revenue is due to a large tax cut Gov. Kim Reynolds signed into law earlier this year, which will lower Iowans' income taxes over a period of several years. One of the law's biggest changes affecting state revenues is the elimination of taxes on retirement income beginning in January.
More:Here's when Iowans can expect to see tax cuts kick in from the new law Kim Reynolds signed
Reynolds, a Republican, said the financial forecast shows Iowa is "correcting the state's overcollection of taxpayer dollars."
"The historic tax cuts I signed into law earlier this year will begin to take effect in a few weeks, and as planned and expected, the projections show a slight dip in the state’s revenue," Reynolds said in a statement. "However, our state’s budget remains robust, and we continue to invest in key priorities to benefit all Iowans."
The financial predictions come from Iowa's three-member Revenue Estimating Conference, which meets three times each year to estimate how much money the state is expected to take in.
In fiscal year 2023, which began July 1, the panel expects Iowa to take in $9.62 billion in revenue, a 1.9% drop from fiscal year 2022, when Iowa received $9.80 billion. In fiscal year 2024, the panel estimates the state will take in $9.63 billion.
Democrats criticized the stagnant numbers.
"Today’s no-growth revenue estimate is yet another warning for Iowa’s economy," state Sen. Janet Petersen, D-Des Moines, said in a statement. "Projected revenues for both 2023 and 2024 are down compared to 2022, and Iowa’s job creation continues to lag behind our neighbors. Senate Democrats are committed to passing a balanced budget protecting Iowa taxpayers and Iowa’s public schools."
The new estimates are coming on the heels of a period of rapid growth that saw Iowa's revenues increase by 11% and then another 11.4% in the previous two fiscal years.
Reynolds must use the new revenue predictions when drafting the budget proposal she will submit to the Iowa Legislature in January. By law, Iowa's state budget cannot exceed 99% of state revenue each year.
In the current fiscal year, state lawmakers budgeted $8.2 billion, an amount equaling 91% of the $9 billion in revenue they had at their disposal.
Iowa closed the books on the last fiscal year with a $1.9 billion surplus.
The tax cuts Reynolds signed this year are expected to reduce state revenues by about $1.9 billion when fully phased in, according to the nonpartisan Legislative Services Agency.
Beginning in January, Iowans in the top tax bracket — those making $75,000 or more — will see their income tax rate lowered to 6%. Income tax rates for all tax brackets will gradually lower until everyone pays a 3.9% income tax rate in 2026.
Reynolds and legislative Republicans, who control majorities in the Iowa Legislature, have said they intend to look at further lowering taxes when lawmakers return to Des Moines on Jan. 9.
At the federal level, high inflation and corresponding interest rate increases by the Federal Reserve to temper that inflation have raised fears of a recession. But Iowa's economic indicators show no signs of contraction, said members of the Revenue Estimating Conference.
"I continue to be optimistic that any downturn will be weathered and, at least in Iowa, it will be shallow and relatively short in length," said Kraig Paulsen, director of the Iowa Department of Revenue.
Stephen Gruber-Miller covers the Iowa Statehouse and politics for the Register. He can be reached by email at sgrubermil@registermedia.com or by phone at 515-284-8169. Follow him on Twitter at @sgrubermiller.
This article originally appeared on Des Moines Register: State panel predicts Iowa revenues will drop as tax cuts take effect
