Perhaps the real lesson that can be learned from Oklahoma is that tax reforms are not easy to implement, even when there is unified control of a state Capitol.
On October 3, 2023, the Oklahoma legislature reconvened for a special session. Governor Kevin Stitt (R) called the special session for the specific purposes of income tax reduction, tax fairness, and increasing transparency within the state budget. Governor Stitt outlined some specific budget transparency measures and he called for the legislature to not only reduce income tax rates, but place the tax on a pathway toward elimination. Further, the Governor argued that Oklahoma and their large budget surplus was ready to not only lower income tax rates, but also eventually eliminate the income tax altogether. Governor Stitt predicted that the income tax could be eliminated within a decade.
Unfortunately for Oklahomans, this special session ended abruptly. The Republicans in the House tended to be supportive of Governor Stitt’s tax and budget reform goals, but the Senate gave the governor a cold shoulder. While the House introduced several tax bills, the Oklahoma Senate, which has a Republican majority, decided to adjourn.
Some Senate Republicans, who were in agreement with the Governor and House Republicans, argued that the decision to adjourn was wrong and that the failure to provide income tax cuts will only result in using the budget surplus for increasing spending. As an example, Republican Senator Rob Standridge stated his disappointment with the adjournment when he stated:
“I have been serving in the Oklahoma Senate for eleven years, and it is amazing to me how much the Senate, and the Legislature in general, has changed. When I came in, we told citizens we would decrease the size of government and lower taxes, and we did that for over half my time in service. But, over the last few years we have steadily grown government, spending like drunken sailors on every new program that comes along, while giving no significant relief to the hard-working Oklahomans who voted us in office to help them keep more of their money.”
Taxpayers lost with the adjournment, but Oklahoma’s special session offers some lessons for Iowa. Governor Kim Reynolds and Iowa’s legislative leaders have indicated that further income tax reform will be a priority for the 2024 legislative session. Further, Governor Reynolds has stated that her goal is to not only have the lowest flat tax in the nation, but she wants to completely eliminate the income tax.
It appears that Oklahoma was not prepared for the policy discussion of eliminating the income tax. Iowa, in contrast, IS prepared. Governor Reynolds and numerous legislative leaders have been outlining ideas and crafting plans for further income tax reform. For instance, Senator Dan Dawson, who chairs the Senate’s Ways & Means Committee, introduced a tax reform plan during the last legislative session that would not only continue to lower income tax rates, but also place the tax on a pathway toward elimination.
Iowa, just as with Oklahoma, has a large budget surplus. Iowa ended Fiscal Year 2023 with a $1.83 billion budget surplus. In addition, Iowa’s reserve accounts will have a balance of $902 million, and the Taxpayer Relief Fund will have $2.74 billion. The balance in the Taxpayer Relief Fund is expected to grow to $3.5 billion by fiscal year 2024. Iowa’s fiscal foundation is strong and even with the 2022 income tax cuts being implemented, revenues continue to grow.
It is clear that Iowa is in a financial position to accelerate planned tax cuts, lower the rate even further, and eventually eliminate the income tax once and for all.
Perhaps the real lesson that can be learned from Oklahoma is that tax reforms are not easy to implement, even when there is unified control of a state Capitol. Viewed in that context, it is remarkable just how much Iowa has been able to accomplish in passing three rounds of income tax cuts since 2018. Special interests will work endlessly to increase spending and prevent taxpayers from keeping more of their own money. The voices demanding more spending and new programs sometimes find a receptive audience in state legislatures. Iowans should be thankful for what their lawmakers have accomplished, and for what they still hope to do.