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Economic Relief or Budget Pain? IA Tax-Cut Plans Debated


Tuesday, February 8, 2022   

Iowa's legislative session is nearly a month old and the state income tax remains a focal point. Republicans want tax cuts by establishing a flat tax rate, while policy experts wonder how it would shape the state moving forward.

Republican Gov. Kim Reynolds and GOP leaders have a trio of plans on the table, centered around switching to a flat rate of either 3.6 or 4%. They argued it keeps more money in taxpayers' hands and makes Iowa more attractive for business.

Mike Owen, deputy director of the nonprofit group Common Good Iowa, cautioned it would eat up a significant portion of the state's revenue.

"There is no way you can make up for the drastic loss of funding that is caused in these plans," Owen asserted.

Fiscal notes on the plans have not yet been issued, but preliminary estimates suggested they could cost the state up to $2 billion. Owen said it puts a strain on education spending, noting issues like inflation will put a damper on economic growth. Republicans say tax cuts from a few years ago have not caused a lot of budget pain, but those plans have not been fully phased in.

Policy analysts added the current surplus is partly due to federal relief dollars related to the pandemic, and a better way to help Iowans would be to boost spending for schools and programs to improve their quality of life.

Matt Sinovic, executive director of Progress Iowa, agrees.

"Do you want to turn on your faucet and have clean water? Do you want to send your kids to schools where the educators are treated fairly, paid well and not thinking about leaving the profession?" Sinovic outlined.

Both groups argued moving away from a tiered income tax rate to a flat rate benefits only higher-income earners. They warned Kansas chose a similar approach several years ago, resulting in economic disaster.

Sinovic added he hopes Iowa learns from the Kansas example, and opt to expand government support.

"If we make that decision now and start to lay the foundation for the next decade or so, then we're going to be so far ahead of other states, who make decisions like Kansas did," Sinovic contended.

He thinks Democrats, who are the minority party in each chamber, have a fair plan which could ease the burden on working Iowans by enhancing tax credits.

Sue Dinsdale, of the Iowa Citizen Action Network, adds these types of policies won't help with the workforce

"There aren't enough workers to keep schools, hospitals and small businesses open," Dinsdale noted.

Disclosure: Progress Iowa contributes to our fund for reporting on Budget Policy & Priorities, Environment, Health Issues, and Social Justice. If you would like to help support news in the public interest, click here.

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