Currently, 16 states have a supermajority requirement that establishes a higher threshold for the legislature to increase certain tax rates. In November, voters in our state will decide whether a supermajority requirement should be applied to the Iowa Legislature, too. Amendment 1 would require a two-thirds vote of each chamber of the legislature to increase income tax rates or create a new income-based tax.
One question being raised about Amendment 1 is whether a two-thirds requirement is too strict. Critics argue that such a threshold could make it more difficult for the legislature to respond if Iowa were struck by an emergency.
Emergencies can take various forms, including weather, public health, public safety, and economic downturns. A severe storm or flood can require an immediate government response. So can a pandemic. But in Iowa, raising taxes has not been, and should not be, a kneejerk reaction to an emergency.
Economic emergencies present a particularly interesting question because a recession can reduce state revenues at the same time policymakers are confronting increased budget pressures. Those competing pressures may tempt policymakers to turn to tax increases, but doing so would shift the state’s financial strain onto Iowans when they can least afford it.
Families may be dealing with lost jobs or reduced hours, farmers may face declining income, and seniors may see their investment accounts in a freefall. Taking more money out of their pockets through higher taxes does not make those hardships disappear; it leaves Iowans with less money to weather them.
Think about the premise behind the argument. If Iowa is struggling through a recession and families and businesses are tightening their belts, should the state’s first response really be to require those same Iowans to send more of their income to the State Capitol?
History shows that it does not have to be. Iowa has faced serious fiscal and economic challenges before without raising income taxes. The Great Recession provides perhaps the best example.
The Great Recession Put States to the Test
The Great Recession of 2007-2009 was a severe economic downturn that forced states across the country to confront declining revenues and difficult budget decisions. Iowa faced the same situation, and it is worth revisiting what happened here.
In 2007, with Governor Chet Culver in office, state spending was increasing rapidly before the recession took hold. For Fiscal Year 2008, the legislature increased spending by 9.37 percent. As the Great Recession arrived, revenues could not keep pace with the higher level of spending, contributing to a $1.7 billion budget shortfall.
Governor Culver initially enacted a 1.5 percent across-the-board spending reduction, and in 2009 the legislature enacted another $30.3 million in spending cuts. Eventually, Culver tapped Iowa’s Economic Emergency Fund and ordered a 10 percent across-the-board spending cut, which affected the entire state budget, including public education and Medicaid.
Those were decisions that were not made lightly, but one fact is especially relevant to the debate over Amendment 1: Even during that historically difficult budget challenge, Iowa did not increase income taxes.
Iowa’s experience during the Great Recession demonstrates that even a budget crisis does not make a tax increase unavoidable. Policymakers have other options, including reducing and prioritizing spending and utilizing appropriate reserves. Just as importantly, the state’s fiscal condition before an emergency matters: controlling spending and maintaining reserves during good times leaves Iowa better prepared to weather the difficult ones.
Amendment 1 Does Not Prohibit Tax Increases
Other states took a different approach during the Great Recession. While Iowa addressed its budget shortfall without raising income taxes, ten states did raise income tax rates: California, Connecticut, Delaware, Hawaii, Maryland, New Jersey, New York, North Carolina, Oregon, and Wisconsin. And there were six states that raised sales tax rates: California, Indiana, Massachusetts, Nevada, North Carolina, and Utah.
Importantly, some of those tax increases occurred in states where lawmakers faced a supermajority requirement. California, Delaware, and Oregon all had supermajority requirements applicable to income tax increases, yet each raised income taxes during the Great Recession. Nevada, which does not have an individual income tax but does require a supermajority to raise the sales tax, also enacted a sales tax increase during that period.
Their experience illustrates an important point about Amendment 1: A supermajority requirement makes raising taxes more difficult; it does not make it impossible. The point is not that Iowa should follow those states’ example by raising taxes. Rather, if Iowa lawmakers believe circumstances justify an income tax increase and can build sufficiently broad support for one, Amendment 1 would not prevent them from acting.
That is precisely the distinction at the heart of Amendment 1. It should be difficult to raise taxes, and a tax increase should not be the first option in response to an emergency. Policymakers should first consider whether they can prioritize spending, utilize appropriate reserves, or make other budget adjustments.
Weathering the Next Emergency
Iowa’s own experience provides perhaps the strongest response to the emergency argument. The state has endured recent challenges caused by floods and severe weather, a pandemic, agricultural difficulties, and recessions all without demonstrating that an income tax increase must be the first response to a crisis.
The better question, then, is not how easily Iowa should be able to raise taxes after an emergency occurs, but how the state can best prepare to weather difficult times. Controlling spending, prioritizing the core functions of government, and keeping the state’s fiscal house in order provide the first line of defense.
Sound budgeting cannot prevent an emergency, but it can reduce the likelihood that an emergency becomes a fiscal crisis. Amendment 1 would add another guardrail. It would not keep Iowa from responding to an emergency, nor would it eliminate the legislature’s authority to raise income taxes. It would simply require broad agreement before lawmakers take that significant step.
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