Prairie Dog

From the April 2022 issue of  The Prairie Progressive, Iowa’s oldest progressive newsletter. The PP is  funded entirely by reader subscription, available only in hard copy for $15/yr.  Send check to PP, Box 1945, Iowa City 52244. Click here for archived issues. Published with permission.

Iowa Tax Cuts: Grover Norquist on Steroids

by Peter Fisher

The right-wing activist Grover Norquist many years ago wrote that his goal was to shrink government to a small enough size that he could drown it in the bathtub. Norquist’s government shrinking mantra is at the heart of the Republican philosophy – cut taxes first, forcing cuts to the budget, while targeting the tax cuts at corporations and the rich.
The tax bill recently enacted in Iowa is just the latest and greatest in a long string of tax cuts aimed at those goals.

The tax bill slashes the mainstay of state revenue, the income tax, by 40%, dwarfing the 10% cut in 1996 and following on more large cuts in the past decade. When fully phased in by 2026, the bill will cut $1.9 billion from general fund revenues. To put this in perspective, the entire state general fund budget is about $8 billion, with over half going to
education: community colleges, the three public universities, and state aid to K-12 schools. The rest funds all the other services Iowans depend on: health care, infrastructure, public safety, state parks and recreation, child welfare, enforcement of labor and environmental regulations.

Ironically, it is the success of the Democrats’ pandemic legislation that has allowed Iowa Republicans to make such a massive dent in revenues without immediate consequences. The current budget surpluses are largely the result of the stimulus checks, the increased
child tax credit and child care credit, and the unprecedented pandemic unemployment
compensation provided over the past two years. Those measures, along with aid to state and local governments, put billions of dollars in the hands of consumers, brought about a swift end to the recession and set the economy back on its pre-pandemic growth path.

These budget surpluses will cushion the impact of the tax cuts this year and for the next couple of years, but a few years down the road this bill is bound to necessitate substantial
budget cuts. Already the state is forecasting a drop in revenues in 2023, when the tax cuts are just beginning to take effect. We cannot remove a quarter of state revenue without impacting education. School funding increases will remain below historic levels, below inflation, and below what is needed to provide quality education and decent incomes
for teachers. The state share of post-secondary education funding has fallen from two-thirds to one third over the past 20 years; it will continue to fall and tuition will continue to rise, leaving parents and students with higher bills and higher debt. Funding for other needs – mental health, affordable child care, water quality—will be scarce.

The income tax cuts are so highly skewed in favor of those at the top that it is breathtaking. The bill moves to a flat 3.9 percent rate, of far more benefit to those previously paying the top rate in our mildly progressive tax. As a result, 82 percent of the tax savings go to the top one-fourth of Iowa taxpayers, with income over $100,000. The average millionaire
will save $62,000 a year. For those in the middle, with incomes between $40,000 and $60,000, the savings will average just $300 – that’s about six dollars a week. The majority of those with income under $40,000, who represent almost 40 percent of taxpayers, will get nothing at all. “Everyone gets a tax cut?” No, they don’t. “The average cut is $1,300?” Not by any reasonable measure—the average Iowan gets one fourth of that.

How do they justify such cuts? It’s the same old refrain: “We have to be competitive.” For what, you might ask. For workers, for teachers, for nurses, for families with children, for college grads? Of course not—for business. And that always means competitive on taxes.
Never mind that Iowa taxes overall and Iowa taxes on business have been right in the middle of the pack for decades and remain so. Never mind that taxes have little to do with where businesses invest anyway. This isn’t about rational economic policy, its about cutting taxes for your friends and contributors.

This obsession with tax cuts will not turn out well. Even when sitting on a billion-dollar surplus the legislature cannot find the money to fund public education, to create affordable housing, to fund mental health, to fix our water quality problem, to make child care affordable. Why will workers want to come here? Why will young people want to stay?

Hang on folks; we’re in a race to the bottom, and the hand basket is picking up speed.

—Peter Fisher is the Research Director of Common Good Iowa and is the Economist Laureate of Iowa.

Note: All impacts are from the Iowa Department of Revenue analysis of the tax bill when fully implemented in 2026, with taxpayers classified by federal adjusted gross income.