By O. Kay Henderson (Radio Iowa)
The governor’s top budget advisor and two other officials agree state tax collections during the next state budgeting year will drop $67 million more than they predicted two months ago.
Governor Kim Reynolds has signed a series of tax reductions since she become governor in mid-2017 and the state income tax will shrink to a single rate of 3.85% on January 1. The state Revenue Estimating Conference expects tax collections to drop by over $1 billion during the 24 month period that will end June 30, 2026.
“Tax cuts are clearly what are driving the reductions in state revenue,” said Iowa Department of Management director Kraig Paulsen, the governor’s budget chief and the chairman of the Revenue Estimating Conference, “so, to be clear, but for the tax cuts, the state would be seeing revenue growth.”
With over $6.6 billion of unspent tax money held in a cash reserve and the Taxpayer Relief Fund, there’s room for more cuts according to Paulsen.
“We’ll have to wait and see what the full impact is of things at the federal level…so that may limit some options,” Paulsen told reporters, “but we’re in a strong position to leave more money in Iowans’ pockets.”
Paulsen, during remarks at the Revenue Conference meeting this morning, said there are positive signals in the national economy, indicating taxes paid to the State of Iowa won’t fall precipitously.
“Moody’s state level data is projecting wage and salary growth of 4.11% in FY26,” Paulsen said, “and the National Retail Federation is also projecting sales to be above the 2023 levels with total sales up 2.15% year over year and projected sales growth of up to 3.5% for December.”
Democrats in the Iowa House say every week Iowans are experiencing more layoffs, while Republican lawmakers are planning for more tax cuts for corporations and the wealthy. A top Democrat in the Iowa Senate says while state tax revenue is declining, Governor Reynolds is sending hundreds of millions of dollars to private schools and Iowans need more information about how the state money in Education Savings Accounts to cover students’ private school expenses is being spent.
