The latest state tax cuts are expected to cost Iowa more than $2 billion in revenue over the next two years. Advocates for tax fairness argued lawmakers are not considering the long-term consequences of the cuts on schools, workers, and livability.
In the face of a dwindling population and shrinking tax base, Iowa lawmakers doubled down on tax cuts this year, and also passed a measure calling for a constitutional amendment to require any state income tax to be a single rate.
Anne Discher, executive director of Common Good Iowa, said lawmakers chose to cut taxes despite the state's growing economic demands like funding Educational Savings Accounts, which allow parents to use public education dollars to pay for private school.
"I understand that in a vacuum, tax cuts can sound pretty good to folks," Discher acknowledged. "But when you really have a serious conversation about trade-offs, the popularity of tax cuts is a lot less clear-cut."
Lawmakers also passed a cluster of bills to accelerate cuts in the state income tax rate from 3.9% to 3.8%, which Discher argued will have long-term economic effects. Supporters of the tax cut measures, including Gov. Kim Reynolds, have promised more fiscal austerity.
The deeper tax cuts mean an average reduction of about $6 to someone in the bottom 20% of the income bracket, $402 for the middle 20%, and more than $20,000 for someone making more than $1.5 million a year. Lawmakers said they plan to cover the tax cuts with Iowa's budget surplus, which Discher called shortsighted.
"The moment in which that's really going to impact services can be pushed out, right?" Discher noted. "But the thing about surpluses is they are one-time money, and you can't count on them in the long run. And so, when the surpluses are gone, we're going to be looking at a level of tax cuts that are really going to put a lot of important services at risk."
Discher contends implementing a flat-rate income tax would be regressive and hurt lower-income Iowans most. Supporters counter it would be more fair and efficient.
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A new survey of public company audit firms reveals businesses are concerned the upcoming election could affect their financial performance.
The Center for Audit Quality found more than 60% of roughly 1,200 audit partners surveyed worry about potential disruptions.
Julie Bell Lindsay, CEO of the center, said few companies are adjusting their business strategies.
"It suggests that while businesses expect some market turbulence and some uncertainty, they feel equipped to navigate through that," Lindsay explained.
Delta Air Lines recently said election-related uncertainty would affect its fourth-quarter revenue as consumers hold off on discretionary spending. Lindsay added geopolitical concerns also remain a top risk factor for businesses, as conflicts in Ukraine and the Middle East continue to affect the global economy.
Despite ongoing resilience, audit partners' outlook for the economy over the next year is only neutral, with most believing a recession is likely on the horizon. Lindsay noted audit partners are watching for potential indicators, including recent federal rate cuts, a possible government shutdown and a fluctuating labor market.
"They also continue to see that inflation could be an ongoing concern over the next twelve months," Lindsay reported. "I will say that the audit partners in our surveys have been pretty accurately predicting what inflation is going to do."
Lindsay emphasized top priorities for businesses in 2025 remain cost management, improved financial performance and growth. She said labor shortages are no longer a priority among economic risks as employers seek to upskill workers and increase compensation. Still, layoffs and decreasing workplace flexibility remain top strategies for companies to improve their bottom line.
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Despite Indiana's recent high-profile business deals, the state's economic fundamentals are lagging, with declining income and education levels posing significant challenges.
Experts argue deeper investments in education and infrastructure are needed for sustainable growth.
Michael Hicks, director of the Center for Business and Economic Research at Ball State University, noted some troubling figures.
"The share of adults with a college degree relative to the country having slipped," Hicks noted. "We see our per capita income relative to the country has slipped substantially, two percentage points, which is sort of a shocking three-decade change in two decades."
Although state officials pointed to low unemployment and rising capital investments as proof of success, Hicks contended without a focus on education and infrastructure, Indiana's long-term economic outlook remains uncertain.
State officials highlighted new projects such as a $3.2 million investment in Kokomo by Stellantis and Samsung SD designed to expand electric vehicle battery manufacturing operations in Indiana as signs of progress. However, Hicks warned the announcements do not address deeper economic issues.
"The numbers they're sharing are just measurements that they have working through IEDC (the Indiana Economic Development Corporation)," Hicks observed. "It has nothing to do with the actual amount of capital that's flowing into the state. That's lower than it has been in most years. So, there's nothing fabulous happening now that is anything other than a press release."
Hicks believes Indiana should prioritize education, environmental policies and regulatory improvements to create sustainable growth.
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Just as inflation starts to ease, Mississippi small businesses face another looming threat: the potential expiration of the small business deduction.
It is also called the Qualified Business Income deduction and if Congress does not renew it, it could affect nearly 266,000 small businesses in Mississippi, which employ more than 430,000 people.
Leah Long, Mississippi state director for the National Federation of Independent Business, said the Main Street Tax Certainty Act, which has bipartisan support, is set to expire in 2025. It is the law allowing small companies to deduct up to 20% of their qualified business income.
"It's a massive hit to their business, because they rely on that," Long stressed. "They're also facing issues like inflation, cost pressure and the uncertainty of the economy. So right now, the biggest focus is on that and getting the congressional members to sign on to support it, to reinstate it and make it permanent."
The Federation's August jobs report found 40% of small business owners had job openings they could not fill in August, up two percentage points from July.
Long pointed out if no action is taken by Congress, it would amount to a big tax hike for nine out of 10 small businesses nationwide, compromising their ability to grow and hire workers.
"When small businesses are doing well and they have more money, they're able to invest more into their business, they're available to best invest more into the economy and also in their communities," Long explained. "These small business owners are the ones that sponsor your kids' T-ball team."
She noted while measures like the Inflation Reduction Act have provided some aid, passing bills like the Main Street Tax Certainty Act will be crucial to support Mississippi business owners.
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