No one knows the future direction of the American economy, but several danger signs are ahead. One is continued inflation at 40-year highs or worse — a cruel hidden tax that eats away wages and savings, with more suffering for families struggling to afford groceries and gasoline. Another is a recession triggered by high interest rates designed to fight inflation. This means job losses, lower incomes, smaller nest eggs as stock markets contract, and even tougher times for businesses reeling from supply-chain shortages.
Politicians, policy makers, and members of the media are scrambling to redefine the term “recession” for the American public. Sometimes these explanations are counter to the traditional economic classification of a recession which is two consecutive quarters of negative growth, as measured by the nation’s Gross Domestic Product (GDP). For anyone keeping track at home, though, the economy declined by 1.6 percent during the first quarter of 2022, and the first estimate of second quarter activity is scheduled to be released on Thursday, July 28; the next announcement of GDP data could signal the arrival of a recession. That GDP release will likely follow another interest rate hike by the Federal Reserve as the FOMC tries to turn back inflation that’s at a 40-year high.
The record high inflation that is plaguing Americans is being fueled by out-of-control federal spending. The federal government has spent over $6 trillion on COVID-19 related pandemic stimulus measures. The most recent, American Rescue Plan Act (ARPA) was not even needed as most states are experiencing large surpluses. The national debt is over $30 trillion and rising, which translates to an estimated $97,500 per citizen.
One topic that comes up frequently when we sit down with taxpayers across Iowa is the number of people our state government employs. Iowans intuitively understand that there are very real and significant costs shouldered by the state for each member of its workforce. For instance, the Legislative Services Agency reports in their most recent Factbook that Iowa spent over $1.5 billion in total compensation just three years ago, accounting for roughly 20% of that year’s state budget. And that doesn’t even count employees at the three regents universities*!
July 1 marks a very important date in the world of state government – the beginning of a new fiscal year. While the state has technically closed the books on fiscal year 2022, the accounting of funds is far from over and final numbers won’t be available until October. But no matter how 2022 is evaluated, Iowa is in a strong position moving forward.
Iowa’s economy is in strong condition. Problems remain, such as the need for more workers to fill the thousands of open jobs throughout Iowa. Nevertheless, thanks to sound conservative fiscal policies from Governor Kim Reynolds and the legislature, the state is on a solid foundation. Conservative budgeting and pro-growth tax reforms are creating a stronger economy. However, national economic headwinds are creating problems and it appears more likely that an economic recession is imminent.
The 2022 legislative session was historic for Iowa taxpayers. Nearly two months ago the legislature passed the largest tax relief measure in Iowa history, which was signed into law by Governor Kim Reynolds on March 1. What too many people overlook is that significant tax cuts like Iowa’s are only made possible by years of prudent and conservative budgeting.
Since 2018, Governor Reynolds and the legislature have placed an emphasis on passing tax reforms and restraining the growth of spending. This legislative session delivered the third (and largest) round of tax cuts yet, which was accompanied by a budget for Fiscal Year (FY) 2023 of $8.2 billion. This is a slight increase from the $8.1 billion FY 2022 budget and will likely mean yet another large budget surplus.
Iowa’s unemployment rate declined to 3 percent in April, which is down from 3.3 percent in March. “The number of unemployed Iowans decreased to 50,900 in April from 55,600 in March. The total number of working Iowans increased to 1,646,800 in April — a figure that is 10,000 higher than March and 45,100 higher than one year ago,” reported Iowa Workforce Development. Unemployment insurance claims are at their lowest level since 1973.
For fifteen years the American Legislative Exchange Council (ALEC) has produced Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. This broad index measures 15 policy variables that ALEC has deemed important to economic growth, with a particular focus on tax and spending policies.
“One of the great mistakes is to judge policies and programs by their intentions rather than their results” – Milton Freedman
This quote hits home for many of us who care about public policy, and it applies most accurately to using our tax dollars to incentivize companies to do business in Iowa. Depending on one’s view of incentives, this can be thought of as economic development, or corporate welfare, or even crony capitalism. The reality is incentives are a tool used to compete in our global economy and literally every state in the nation has adopted some form of incentive program.
Americans have less money than they had last year—though taxes haven’t been raised. So what’s the problem? Inflation, which has increased at a 40-year high annual pace of 7.9%. It acts as a hidden tax because we don’t see it listed on our tax bills, but we sure see less money on our bank accounts.
Obvious statement up front: Almost no one likes paying taxes.
But Iowans understand taxes provide for the vital services and infrastructure we all depend on. Property taxes, specifically, are a dependable way to collect revenue and they encourage less evasive behavior than income and sales taxes.
A few recent headlines have passed without much attention. The first story is our national debt has reached $30 trillion, while the second is the trade deficit for 2021 hit a record $859.1 billion. Both stories were virtually ignored because the American people have just become numb to the topics, though they may be missing some wider ramifications, especially when it comes to trade.
By Patrick Barron What almost everyone calls “inflation” is really a rise in the general price level. OK. But the real definition of “inflation” is inflation of the money supply. A rise in the general price level is a consequence of inflation of the money supply. Technically, the price level is determined by supply and demand, one of economic science’s […]
By John Hendrickson This past week we lost a champion of liberty with the passing of Bob Williams. Bob served as a state legislator from Washington and he founded two state policy think tanks, Evergreen Freedom Foundation and the Washington Policy Center. As a lawmaker and as a public policy professional, Bob Williams was a budget hawk and a defender […]
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 […]
This year is shaping up to be a big one for tax relief. From Mississippi to Kansas to Virginia to Iowa, elected officials are taking many paths to make taxes less burdensome, but they should all bear one thing in mind: without spending discipline, sound tax policy is impossible to maintain over the long term. Government officials at both the state and federal levels have been trying for years to tax and spend their way to fiscal success. This is no way to build a stable fiscal house. Luckily, some states this year are exploring the kinds of strong budgetary rules that create the conditions for prosperity.
The roadmap to tax reform begins with a prudent budget and that’s precisely what Governor Kim Reynolds is planning for Iowa. For Fiscal Year 2023, which begins this July, Governor Reynolds is proposing an $8.2 billion General Fund budget. That amount equates to an increase of nearly $100 million dollars in new state spending for the budget as a whole. […]
Government spending is at the heart of sound public policy. But out-of-control spending for decades has created substantial economic destruction and ongoing threats that must be remedied before things get worse. Fortunately, we have examples of how fiscal rules can solve this problem. We must put these rules into place before our economy gets any worse.
Governor Kim Reynolds, in her Condition of the State address this week, delivered a Reagan-esque take on the finer points of governing. “Under these ceilings, next to this marble, among these columns and portraits, it’s tempting to believe that nothing good happens unless we legislate it, regulate it, or fund it. But in the small towns, around kitchen tables, in […]
Some of our country’s fastest growing states have spent the past decade crafting policies that lower taxes, reduce the regulatory burden, and rely on the choices of their citizens instead of government mandates and control. The free-market solutions presented in this report are a blueprint for growth and a reliable roadmap for Iowa’s future. Click to download the report
By John Hendrickson, Policy Director for ITR Foundation, and Dean Stansel, Ph.D., Economist at the Bridwell Institute in the Cox School of Business at Southern Methodist University A major trend from the Census is the growing number of individuals who are voting with their feet against bad economic policies. States with high tax and regulatory burdens such as California, […]
ITR Foundation Deputy Director Walt Rogers recently interviewed Dr. Ernie Goss, a professor of economics at Creighton University Heider College of Business. They covered many topics facing our economy today. Among them were: Supply chain: We do a monthly survey at Creighton University of supply managers and manufacturers, and we’ve been doing it for 25 years. This is the […]
When will the supply chain crisis be resolved? Americans are being told that they will just have to “deal” with empty store shelves and are starting to realize that “Build Back Better” is more of a wrecking ball. “Thanksgiving turkeys may be more expensive and harder to find. Buy your bird now, the experts say,” ran a headline in the […]