Budget Growth & Tax Cuts: A Win-Win for Iowa

Let’s make something clear right away: Iowa’s state budget is going to continue to grow in the coming years.

The only reason that point may be in question is Iowa’s Revenue Estimating Conference (REC), which has the difficult responsibility of estimating revenue for the state, recently released updated projections. The REC increased the current fiscal year (2022) estimate by 4.2 percent to $9.171 billion, while the FY 2023 estimate was lowered slightly by $14.8 million to $9.156 billion. That projected reduction in state revenues isn’t because of a faltering economy, though. It’s the result of the first wave of tax cuts that will be delivered from this year’s historic tax reform package.

And of course, that’s how tax cuts work.  The whole idea is the taxpayer gets to hold onto more of their hard-earned dollars while government gets a little less. Iowa can afford to bring in fewer dollars because our state budget has been running at a substantial surplus for several years now:

  • 2020 closed with a $300 million surplus.
  • 2021 closed with a $1.24 billion surplus.
  • 2022 is projected to close with a $1.29 billion surplus.


Those surpluses have been accumulating with the state’s cash reserves, at nearly $1 billion, at their statutory limit.  This structural imbalance in how Iowa collects revenue is precisely the reason why a major tax reform package was so sorely needed.  Even with a growing budget in 2023, and with tax cuts occurring, the REC is still projecting that the surplus for Fiscal Year 2023 will be $975.8 million.

Immediately after the conclusion of the REC meeting many media outlets and progressives began to panic that the tax reform measure is eating away too much revenue and could potentially result in a budget crisis.  Digging into the numbers beyond the headline show nothing is further from the truth, though.

The REC is required to account for any legislative action, which so far this year includes the major tax law changes. The new tax law is estimated to reduce Iowa’s General Fund revenue by $236.3 million in 2023, but the overall revenue estimate only declined by a small fraction of that amount, meaning a growing economy will keep boosting the state’s bottom line.   Kraig Paulsen, Director of the Department of Management and the Department of Revenue, and a member of the REC, stated that Iowa is in “an extremely, extremely strong financial position.” Although members of the REC did address economic uncertainties such as the historic inflation and the war in Ukraine, the panel was still optimistic overall.

Director Paulsen also does not foresee any future budget cuts because of reduced revenues. Revenues are still growing even with the tax rate reductions. “I don’t foresee cuts to any services… In the foreseeable future, no, I really don’t see any of those problems,” noted Director Paulsen.

Some who are predicting that the sky will fall because of this year’s tax reforms were also making the same argument after tax reforms passed in 2018 and in 2021. The sky did not fall, and Iowa’s economy was able to withstand both a pandemic and severe weather events. This is why fiscal conservatism is so important. Governor Reynolds and the legislature have balanced prudent tax reform with controlled spending growth so the state wasn’t left spending beyond its means.

But even if events outside the control of our state’s leaders end up having a negative impact on our economy, Iowa will still have over $2 billion in the Taxpayer Relief Fund as a result of the ongoing budget surpluses.  This Fund can provide a cushion to protect the budget or even serve as a catalyst for more tax cuts in the future.  Commenting on the REC estimate Senate Majority Leader Jack Whitver stated “that even in the midst of global economic challenges, Iowa is in a strong fiscal position. Reserve accounts are full, the taxpayer trust fund will have nearly $2 billion, and the economy is growing. The tax relief bill is sustainable, the budget is balanced, and Iowa is on the right track,” noted Senator Whitver.

At the end of the day, Iowa’s state government is still growing even with the tax cuts. It just is not growing as fast as some special interests and progressives would favor. Iowans should not be deterred by the “cry wolf” arguments that the sky will fall as a result of the historic tax reform law.  Delivering tax cuts while the state continues to grow its budget is a win-win for Iowa.