‘Incredibly reckless’: Iowa State Senate tax bill would slash revenue by more than $1 billion

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The Iowa State Capitol. — photo by Lauren Shotwell

The tax bill that will be voted on by the Iowa State Senate this week would cut state revenues by almost $1.2 billion a year when fully implemented, according to an analysis by the Legislative Services Agency (LSA) released on Tuesday.

The Republican-controlled Senate pushed SF 2838 through on a series of party-line votes without following the established practice of waiting for an LSA assessment of the bill before holding a committee vote. Republicans even altered Senate rules last week, so the bill could be voted on by the Ways and Means Committee after it was passed by a subcommittee earlier that day.

Under normal rules, a bill cannot be voted on by a committee the same day it is passed by a subcommittee.

No economic analysis of the tax bill, which is more than 130 pages long, was introduced during the very limited debate in the Senate has had on the measure.

“The fiscal note from the Legislative Services Agency on Iowa Working Families Tax Relief Act is what I anticipated,” Sen. Randy Feenstra, chairman of the Senate Ways and Means Committee told the Des Moines Register. The Republican from Hull is one of the principal backers of the bill. “[The tax bill] keeps our promise of bold, pro-growth tax relief for Iowans.”

“This is an incredibly reckless attempt by one party, while in power, to impose a tax-cut ideology that will ultimately harm the state,” Iowa State University economist Dave Swenson said of the Senate bill. “It would put Iowa in the position of being like Kansas — a state that cut its taxes massively in order to stimulate business growth, but those cuts actually undermined the production of public goods so much that it harmed the economy.”

Swenson pointed out that according to the LSA analysis, the bill would end up cutting overall tax state revenue by one-sixth. The wealthiest would receive the greatest reduction in personal income taxes, because the progressive structure of the state’s income tax, Swenson explained.

“It will result in about 25 percent less revenue from income taxes,” Swenson said. “But the projected savings for the corporation tax are massive — an almost 60 percent reduction in revenue from corporation taxes.”

The bill would increase taxes in certain areas. It would increase the range of internet sales that are taxed. It would also apply the state sales tax to services associated with the so-called “gig economy.” For example, Uber and Airbnb services would be covered by the state sale tax for the first time.

“It also orders a reduction and ultimate elimination of a range of tax credits that are being used for business development and economic stimulation that have not been proven to be effective,” Swenson said.

Although the bill seems certain to pass the Senate, it faces an uncertain future, because the Iowa House of Representatives is writing its own tax bill, which takes a different approach than the Senate bill. The House has announced that its tax legislation will be based on Gov. Kim Reynolds’ proposed tax bill.

“It’s not anywhere near as reckless as the Senate bill that being championed by Feenstra,” Swenson said. “It’s much more thoughtful.”

“It lowers tax rates, but it only lowers tax rates if revenue targets are met.”

“We haven’t gotten [an LSA analysis of] the governor’s tax bill yet, so we don’t know what the cost will be,” Swenson noted.

Gov. Reynolds has said that passing a tax reform bill is a priority for her administration. In order to advance to the governor’s desk to be signed into law, a bill must be passed by both chambers of the legislature.

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