We have entered a new fiscal year with lots of uncertainty about the national economy and Iowa is poised to weather whatever events may happen.
The first month of Iowa’s new fiscal year is now behind us. While a single month is just one small slice of the pie, it sets the stage for the next round of income tax reductions to be phased in across the Hawkeye state. A looming national recession might be causing people to spend less of their money and inflation is still an issue challenging many Iowans, but in the wake of it all, state government collected nearly 40% more in the month of July than it did in July of 2022, far exceeding expectations.
Monthly revenue reports are most helpful when compared with the state’s revenue forecast. Being in a new fiscal year, the FY2024 estimate is a projected decrease of $300 million (or -3.1%) compared to the FY2023 actual revenues. The projected revenue drop is not based on an economic downturn, but as a reflection of the income tax cuts that are being phased in over time. After years of sizable budget surpluses, these cuts are very much needed and more than justified.
When broken down by the three largest sources (personal income tax, sales/use tax, and corporate income tax), revenue compared to July 2022 is detailed below (directly from the LSA Revenue Memo):
The Revenue Estimating Conference has predicted that each of the major tax categories would experience a reduction from last year’s collections. Since lawmakers have restrained the growth of spending in recent years, the reduction in revenue due to the tax cuts still leaves Iowa’s budget in an incredibly strong position. Below are the predicted reductions by tax category for FY24:
Iowa has entered a new fiscal year with lots of uncertainty about the national economy, but we are poised to weather whatever events may happen. Our state has a strong balance sheet, a responsible budget, and a diverse economy.
Below is a graph depicting monthly revenue collections for FY 2023 and July 2024.