Revenue Growth and Missing Property Tax Savings

State Revenue in August Paints Positive Picture

Iowa’s revenue report for August has been released and the news for the month was encouraging. Even under the weight of continued inflation and a national recession, the state’s net General Fund revenue was $57 million (6.5%) above the August 2021 net revenue level.

When broken down by the three largest sources of revenue, they demonstrated monthly growth over 2021 (directly from the LSA Revenue Memo):

  • Personal income tax receipts totaled $476.2 million, an increase of $24.1 million (5.3%) compared to August 2021.
  • Sales/use tax receipts totaled $436.3 million, an increase of $43.5 million (11.1%) compared to August 2021.
  • Corporate income tax receipts received in August 2022 totaled $19.1 million, an increase of $7.2 million (60.5%) compared to August 2021.

Did Your County Pass On Mental Health Savings?

Local governments in Iowa started a new fiscal year on July 1. The new fiscal year brings new budgets, and many times, new tax rates. Thanks to 2021’s tax relief package, beginning in FY2023 Iowa counties are no longer tasked with paying the bill for mental health services. 

Mental health levies ranged from $0.00 (Audubon County) to $0.58 (Wapello County) last year. It seemed reasonable that Iowans would see cuts to their county property tax rates falling somewhere within that range, if not greater, for this new fiscal year. Unfortunately, not all local governments passed the tax relief onto their taxpayers.

48 of the 99 counties did not pass along the full amount of mental health savings the state provided them. In fact, 23 counties actually raised their rates altogether! Find out what counties passed on the most savings and which ones increased taxes. 

You can see how your county handled the mental health savings here, or check out ITR Local to see how your county’s tax rate stacks up.

Federal Strings Tangle Medicaid in Iowa

Medicaid, jointly run by the federal and state governments, provides healthcare coverage to Americans who can’t afford it on their own, typically because they are low-income, disabled, and/or elderly. A statutory formula determines how each state divides the cost of medical services with the federal government, and during the COVID pandemic, the federal government increased its own share.

Money coming from that source is never free, however. For states to receive the additional funds, they had to agree to attached strings, one of the most impactful of which was the requirement to provide continuous coverage for Medicaid enrollees until the end of the public health emergency, regardless of changes in their income.

The main driver of Medicaid expenditures is enrollment, or simply the number of people who are covered in the program. Before COVID, around 3,000 new individuals per month were enrolled. In FY2021, the enrollment rate more than doubled, with total growth of 81,520 people for the fiscal year.

Find out what steps Iowa can take to protect Medicaid dollars and ensure that those needed resources are there for those who really need them.

Biden vs Reynolds: Contrasting Visions

This year the Republican Party selected Governor Kim Reynolds to deliver the official response to President Joe Biden’s State of the Union Address. Governor Reynolds and President Biden offer two completely different views of both political philosophy and statesmanship.

President Joe Biden and Democrats are celebrating the passage of the $750 billion Inflation Reduction Act. The Inflation Reduction Act, just as with the America Recovery Act (ARPA), is another attempt by the federal government to spend taxpayer dollars to bring about an economic recovery. The reality is Biden thinks spending massive amounts of taxpayer dollars that the country does not have will lower inflation.

Thankfully Governor Reynolds understands that, just like any household budget, you cannot spend your way out of debt. By cutting taxes, reducing spending, and removing burdensome and unnecessary regulations, Governor Reynolds has Iowa on the fast track to recovery.

Check out John’s article on how Iowa is a policy blueprint for the nation to follow.

Time for Tax Credit Reform

Iowa’s historic tax reforms this year focused on lowering the income tax rates paid by Iowans and the companies that employ them. The next step needs to be changing who is – and is not – paying those taxes. If Governor Kim Reynolds and the legislature want to further position Iowa for the future, it’s time to take on the state’s addiction to special tax breaks.

The massive collection of tax credits weigh down the state budget every year. The estimated liability for tax credits in Iowa is $581.4 million for FY2022, with the largest corporate tax break being the Research and Activities Tax Credit ($67.6 million in FY2021).

With the help of friend and expert, John Mozena, President of the Center for Economic Accountability, they speak to why it is critical that Iowa addresses this problem now.

Iowa Sales Tax Holiday Is No Cause For Celebration

sales tax holiday is a limited time period during which a state frees purchases of specific items from state and local sales tax. At first glance this seems like a good policy from a tax-skeptical, pro-consumer perspective — giving people a break — especially when times are tough, as they are, now, with high inflation. However, sales tax holidays create complexities for tax code compliance, do not promote economic growth or increase consumer purchases, and distract policy makers from truly beneficial sales tax reforms.

Iowa implemented its sales tax holiday, held annually on the first Friday and Saturday of August, in 2000, restricting it to clothing and footwear priced less than $100. The policy has become popular, particularly because of its alignment with back-to-school shopping.

While sales tax holidays have been politically popular during the twenty-first century, academics, economists, and analysts across the political spectrum have all concluded they are not good policy. The left-leaning Institute on Taxation and Economic Policy (ITEP) reports that “their benefits are minimal while their downsides are significant.” Meanwhile the more-right-leaning Tax Foundation states, “Sales tax holidays neither promote economic growth nor increase purchases. They create complexities for all involved, while inserting the political process into consumer decisions.”

Holidays are valuable opportunities for Iowa families to relax and recover, but sales tax holidays have no reviving effect and, instead, allow the revenue-collecting work to weigh even more heavily on the other days of the year.

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