By John Hendrickson, Policy Director for Iowans for Tax Relief Foundation and
Patricia Patnode, Junior Fellow for the Independent Women's Forum
Regulations are a necessary part of society, but too much regulation can hinder economic growth and prosperity. Lowering tax rates, limiting spending, and eliminating burdensome regulations was the Trump Administration’s formula to produce pro-growth economic policy. The last item--regulatory reform--is often a forgotten pillar of economic growth. Regulations can be roadblocks for both individuals and businesses, which is why regulatory reform can help further boost Iowa’s state economy.
This year the Iowa legislature passed, and Governor Kim Reynolds signed into law the largest tax cut in state history. Iowa’s progressive income tax will be reduced until it reaches a flat 3.9 percent by 2026. The corporate tax rate will also be gradually reduced to 5.5 percent. Starting in 2023, all taxes on retirement income will be eliminated. Governor Reynolds and the legislature have also followed a conservative approach to spending. Prudent budgeting has allowed pro-growth tax reforms to be enacted.
Governor Reynolds has also made occupational licensing reform a priority, recognizing out-of-state licenses for example was a notable legislative victory for her Administration in 2020. While occupational licensing reform is important, Iowa policymakers should consider further reforms to regulations. Iowa also has a large amount of state regulations. The Mercatus Center examined Iowa’s code and found an estimated 161,268 regulatory restrictions. For comparison, Kansas has just 46,561, less than a third of Iowa’s volume.
There are many options for pruning a large regulatory burden. A governor could act using executive authority to implement a moratorium for new regulations. A moratorium would allow the executive branch time to review existing regulations and make recommendations for the repeal or simplification of regulations, without improvements being offset by the continual addition of new rules over time.
Several governors have found success with this approach. Arizona Governor Doug Ducey enacted a moratorium in 2015, which has been in place his entire administration. During that time, Arizona has eliminated or simplified 3,047 regulations, which have saved taxpayers an estimated $169.1 million. The moratorium has now been codified in state law.
A state could also require that for every new regulation issued, at least one or two regulations be eliminated. Some states, such as our neighbors in Missouri and Nebraska, have even established explicit goals to reduce red tape. Missouri’s goal was a 33 percent reduction in regulations, Nebraska’s was 25 percent. In order to meet their 10 percent reduction goal by 2023, Ohio even rolled out a website where businesses and individuals can report problematic regulations directly to the government via online form. Ohio has been a leader in regulatory reform and the legislature has passed legislation which established a goal of a 30 percent reduction in regulation by 2025. In addition, Ohio requires for every new regulation two must be repealed.
Legislators should also consider routinely sunsetting regulations, which will force policymakers to review or update existing rules or else they would expire. These could be applied narrowly to occupational licensing regulations, or to all regulations. Alternatively, the Administrative Review Committee could set up a process to fast-tract the repeal of regulations found to impose costs but no substantial benefits.
Regulatory reform is often a forgotten pro-growth policy, but these are just a few ideas that could allow individuals and businesses to prosper and make Iowa a more attractive place to work and start a business. Governor Reynolds and the legislature have implemented much needed pro-growth tax reforms to make Iowa’s economy grow more rapidly. Eliminating burdensome red tape will only make our economy even more competitive.