Iowa's revenue projected to drop, but Republicans say there's room for more tax cuts

Iowa will take in less money this year than it did last year as more Republican-backed tax cuts kick in.

But Republicans say there's plenty of room in the budget to further reduce taxes.

The state's three-member Revenue Estimating Conference met Wednesday to forecast Iowa's revenues for the next two fiscal years.

The panel expects Iowa to take in $9.75 billion in fiscal year 2024, which ends June 30, 2024. That's a 1% decrease from the $9.85 billion the state took in the previous year.

In fiscal year 2025, which begins on July 1, 2024, the panel predicts Iowa will take in $9.64 billion, which would be a 1.1% drop from the current year's revenues.

The dip is due to a wide-ranging tax cut package that Gov. Kim Reynolds signed in 2022 that will lower Iowa's top personal income tax rate to a 3.9% flat tax by 2026. Portions of that income tax cut have already phased in, and the law has also reduced the corporate tax rate and eliminated taxes on retirement income.

More: Here's when Iowans can expect to see tax cuts kick in from the new law Kim Reynolds signed

What kind of tax cuts are Iowa Republicans planning?

Reynolds and legislative Republicans are pledging to further cut taxes next year. They're touting a $1.83 billion budget surplus from the past fiscal year, as well as $902 million in reserve funds and $2.74 billion in the Taxpayer Relief Fund, which may only be used to reduce taxes.

Senate Majority Leader Jack Whitver, R-Grimes, said in a statement that the panel's revenue predictions confirm the strength of Iowa's economy and the benefits of tax cuts passed by Republicans.

"Projected revenues are expected to exceed state spending by $1.233 billion this year, setting the stage for Senate Republicans to seek more income tax relief, while implementing another conservative state budget," he said.

Reynolds is required to use the panel's estimate to draft the budget she will submit to Iowa lawmakers when the legislative session begins in January. By law, Iowa's state budget cannot exceed 99% of state revenues each year.

But the Republican-led Legislature has been spending far less money than the state is taking in as lawmakers prepare for the already passed tax cuts to kick in and plan new ones.

How is Iowa's economy affecting state revenue?

Lawmakers this year approved an $8.52 billion state budget — a figure that represents 88% of the state's ongoing revenues and 82% of the total revenue the state had available to spend, including surpluses from previous years.

Kraig Paulsen, the director of the Iowa Department of Management and a member of the Revenue Estimating Conference, said state revenues would have been projected to grow if not for the tax cuts.

More: Kim Reynolds signs $8.5 billion budget into law. Here's where the money will go:

But he said organic growth in Iowa's economy is helping offset the dip in revenue as the state takes in more money from areas such as the sales tax and corporate taxes.

"Iowans are working and they’re making money, they’re spending money," he said. "They’re doing the things Iowans do, right. So that generates revenue into the state."

Paulsen said the broader economic conditions in Iowa and nationally look better than a year or six months ago, when some were predicting America would enter a recession.

"I sure don’t see the threat of a recession like I did, as did many others, a year ago, six months ago," he said. "Are there pockets of recession if you look in particular industries? I think that’s absolutely true. There’s also pockets of really strong growth."

Sen. Janet Petersen, D-Des Moines, the ranking member on the Senate Appropriations Committee, said Republicans should focus on "creating more opportunities for our middle class to get ahead, and fewer giveaways of public dollars to private interests."

"As we face declining state revenues, it’s troubling to hear that Gov. Reynolds and statehouse Republicans are concocting yet another round of multi-million-dollar, multi-year tax giveaways for special interests and wealthy Iowans," Petersen said in a statement.

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: Iowa panel predicts state revenue will drop slightly as tax cuts begin