State tax revenue that fuels Iowa’s budget essentially will remain flat in the next fiscal year, according to the latest estimates from the panel that projects state revenues.
While recently enacted state income tax cuts are reducing their slice of the state budget pie, those reductions have been mostly offset by continued growth in sales tax revenue, according to the projections.
The latest estimates, published Wednesday by the three-member Revenue Estimating Conference during its quarterly meeting, will guide legislators as they craft the next state budget when they return next month to the Iowa Capitol for the 2024 legislative session.
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The next state budget year begins July 1.
The panel projected that revenue will essentially be flat in the next budget year. It projected total tax receipts in the current budget year, fiscal 2024, will be $11.036 billion, and in the next budget year, fiscal 2025, revenue will be $11.041 billion.
State income tax revenue is dropping as a result of tax cuts: the state collected nearly $5.8 billion in state income tax revenue in the 2022 budget year and is projected to collect just less than $5 billion in the 2025 state budget year, a decline of nearly $820 million.
However, Iowa sales tax revenue continues to grow: The state collected more than $3.8 billion in state sales tax revenue in the 2022 budget year and is projected to collect $4.3 billion in the 2025 state budget year, an increase of $470 million.
While income taxes and sales taxes account for the largest share of the projections, other smaller revenue streams are also included.
Kraig Paulsen, the director of the Iowa Department of Management who represents the governor’s office on the Revenue Estimating Conference, said that indicates to him there is “organic growth” in Iowa’s economy.
“I think it just means Iowans are working and they’re making money (and) they’re spending money,” Paulsen told reporters. “They’re doing the things Iowans do. And so that generates revenue into the state. Clearly those numbers are exceeding what the tax cuts reduced it by.”
The panel otherwise painted a rosy picture of the state’s economy.
“It seems like Iowa’s continued to be more stable than just about anyplace else I’ve seen. So all’s good,” said David Underwood, the public representative on the panel.
The three-member Revenue Estimating Conference is comprised of representatives of the governor’s office, the nonpartisan Legislative Services Agency that analyzes the state’s finances, and the public.
Overall state tax revenue dipped slightly — for the first time in a decade — in the current state budget year. That dip was driven largely by the state income tax cuts.
State income tax revenue likely will continue to decline as the tax cuts continue to be gradually phased in. Gov. Kim Reynolds and the Republican-majority Iowa Legislature in 2022 overhauled state income tax rates, establishing a series of annual reductions to ultimately reach a 3.9 percent rate for most state income taxpayers effective in tax year 2026.
The law also eliminated the state tax on retirement income and established a measure to reduce state business tax rates if that revenue reaches certain benchmarks.
Reynolds and statehouse Republicans are mulling an acceleration of those individual income tax cuts, and perhaps a process of eliminating the state income tax altogether.
Paulsen said Wednesday he believes there is room in the state’s finances for further tax reductions. In addition to the state revenue, he pointed to the state’s $2 billion general fund budget surplus, $3.6 billion taxpayer relief fund and $1 billion in cash reserve and economic emergency funds.
“I think there’s lots of room in there for all kinds of policy decisions, including tax cuts,” said Paulsen, himself a former state lawmaker and Iowa House speaker.
The top Democrat on the Iowa Senate Budget Committee warned against future state cuts upon the release of the panel’s projections.
Iowa Sen. Janet Petersen, a Democrat from Des Moines, called for the resumption of public budget hearings and financial policy focused on the middle class rather than, in her words, “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 multimillion dollar, multiyear tax giveaways for special interests and wealthy Iowans,” Petersen said in a statement. “Iowans deserve a better deal in the upcoming session with more sunshine and accountability on our state budget.”
Iowa Senate Majority Leader Jack Whitver, a Republican from Grimes, said the panel’s latest projections show the strength of Iowa’s economy and the benefits of the state tax cuts. He said the revenue projections set the stage for more income tax reductions.
“Hundreds of millions of dollars in tax cuts have helped Iowans keep more of their money to fight inflation and increase the reward for their work and investment,” Whitver said in a statement.
While the panel projects just more than $11 billion in state tax revenue for the next budget year, lawmakers are required by state law to budget no more than 99 percent of available revenue. And since Republicans have earned full control of the state lawmaking process, they have budgeted far less than that.
In the current state budget year, lawmakers were able to spend up to $10.4 billion. But majority Republicans set a state budget of just more than $8.5 billion, or roughly 82 percent of available revenue.
Whitver pledged that Senate Republicans will implement “another conservative state budget.”
www.thegazette.com
While recently enacted state income tax cuts are reducing their slice of the state budget pie, those reductions have been mostly offset by continued growth in sales tax revenue, according to the projections.
The latest estimates, published Wednesday by the three-member Revenue Estimating Conference during its quarterly meeting, will guide legislators as they craft the next state budget when they return next month to the Iowa Capitol for the 2024 legislative session.
ADVERTISING
The next state budget year begins July 1.
The panel projected that revenue will essentially be flat in the next budget year. It projected total tax receipts in the current budget year, fiscal 2024, will be $11.036 billion, and in the next budget year, fiscal 2025, revenue will be $11.041 billion.
State income tax revenue is dropping as a result of tax cuts: the state collected nearly $5.8 billion in state income tax revenue in the 2022 budget year and is projected to collect just less than $5 billion in the 2025 state budget year, a decline of nearly $820 million.
However, Iowa sales tax revenue continues to grow: The state collected more than $3.8 billion in state sales tax revenue in the 2022 budget year and is projected to collect $4.3 billion in the 2025 state budget year, an increase of $470 million.
While income taxes and sales taxes account for the largest share of the projections, other smaller revenue streams are also included.
Kraig Paulsen, the director of the Iowa Department of Management who represents the governor’s office on the Revenue Estimating Conference, said that indicates to him there is “organic growth” in Iowa’s economy.
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“I think it just means Iowans are working and they’re making money (and) they’re spending money,” Paulsen told reporters. “They’re doing the things Iowans do. And so that generates revenue into the state. Clearly those numbers are exceeding what the tax cuts reduced it by.”
The panel otherwise painted a rosy picture of the state’s economy.
“It seems like Iowa’s continued to be more stable than just about anyplace else I’ve seen. So all’s good,” said David Underwood, the public representative on the panel.
The three-member Revenue Estimating Conference is comprised of representatives of the governor’s office, the nonpartisan Legislative Services Agency that analyzes the state’s finances, and the public.
Tax cuts impact
Overall state tax revenue dipped slightly — for the first time in a decade — in the current state budget year. That dip was driven largely by the state income tax cuts.
State income tax revenue likely will continue to decline as the tax cuts continue to be gradually phased in. Gov. Kim Reynolds and the Republican-majority Iowa Legislature in 2022 overhauled state income tax rates, establishing a series of annual reductions to ultimately reach a 3.9 percent rate for most state income taxpayers effective in tax year 2026.
The law also eliminated the state tax on retirement income and established a measure to reduce state business tax rates if that revenue reaches certain benchmarks.
Reynolds and statehouse Republicans are mulling an acceleration of those individual income tax cuts, and perhaps a process of eliminating the state income tax altogether.
Paulsen said Wednesday he believes there is room in the state’s finances for further tax reductions. In addition to the state revenue, he pointed to the state’s $2 billion general fund budget surplus, $3.6 billion taxpayer relief fund and $1 billion in cash reserve and economic emergency funds.
“I think there’s lots of room in there for all kinds of policy decisions, including tax cuts,” said Paulsen, himself a former state lawmaker and Iowa House speaker.
What lawmakers say
The top Democrat on the Iowa Senate Budget Committee warned against future state cuts upon the release of the panel’s projections.
Iowa Sen. Janet Petersen, a Democrat from Des Moines, called for the resumption of public budget hearings and financial policy focused on the middle class rather than, in her words, “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 multimillion dollar, multiyear tax giveaways for special interests and wealthy Iowans,” Petersen said in a statement. “Iowans deserve a better deal in the upcoming session with more sunshine and accountability on our state budget.”
Iowa Senate Majority Leader Jack Whitver, a Republican from Grimes, said the panel’s latest projections show the strength of Iowa’s economy and the benefits of the state tax cuts. He said the revenue projections set the stage for more income tax reductions.
“Hundreds of millions of dollars in tax cuts have helped Iowans keep more of their money to fight inflation and increase the reward for their work and investment,” Whitver said in a statement.
Crafting the next state budget
While the panel projects just more than $11 billion in state tax revenue for the next budget year, lawmakers are required by state law to budget no more than 99 percent of available revenue. And since Republicans have earned full control of the state lawmaking process, they have budgeted far less than that.
In the current state budget year, lawmakers were able to spend up to $10.4 billion. But majority Republicans set a state budget of just more than $8.5 billion, or roughly 82 percent of available revenue.
Whitver pledged that Senate Republicans will implement “another conservative state budget.”
Projection: Iowa tax revenue to flatten in next budget year
Sales tax revenue continues strong growth, helping to offset revenue reductions resulting from recently enacted state income tax cuts.
www.thegazette.com
