Tax Policy and the 2024 Legislative Session

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Iowa republicans seem poised to cut taxes again this year. We'll talk about what is being considered with key legislators from both parties and both chambers on this edition of Iowa Press.

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For decades, Iowa Press has brought you political leaders and newsmakers from across Iowa and beyond. Celebrating 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, March 22nd edition of Iowa Press. Here is Kay Henderson.

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Henderson: In January, Governor Kim Reynolds unveiled a wide-ranging bill to actually cut the individual income tax retroactively, provide a property tax cut to some child care centers and to provide a business tax cut related to the unemployment trust fund in the state. None of those proposals have become law and our guests today will talk about those proposals and other tax-related measures that are before the legislature in the 2024 legislative session. Dave Jacoby is from Coralville. He is the top-ranking democrat on the House Ways and Means Committee. Ways and Means, means the tax writing committee. And Dan Dawson is a republican from Council Bluffs. He is the Chairman of the Senate Ways and Means Committee. Gentlemen, welcome to Iowa Press.

Thank you.

Thank you.

Henderson: Joining our conversation is Katarina Sostaric of Iowa Public Radio and Erin Murphy of the Gazette in Cedar Rapids.

Murphy: Senator Dawson, we'll start with you. We've come to the point in the session where tax policy starts to kind of come to the forefront. We hadn't heard a lot since the proposals were introduced. Are we going to have income tax action this year? Will the state income tax rates be lowered more?

Dawson: That's what the hope is. The problem in the building here has been thus far is that the Governor's AEA proposal has been out there and there's a lot of moving parts inside that with the teacher pay provision, what impacts there are to the AEAs, as well as setting school funding. Those things haven't been resolved yet. So, Chairman Kaufmann and I are kind of waiting on the side bench here for our opportunity to get going in the session. Once we get that resolved, once we actually get a joint target, I think you're going to start to see some more advanced talks on that, not that we're not talking right now. Bobby and I talk every day, not every day, but at least a couple of times a week on this.

Murphy: And just real quick, Chairman Kaufmann, Bobby Kaufmann is your republican colleague on the House side.

Dawson: Absolutely, yeah. And we have great conversations, but we say from day one, taxes do not drive the budget, the budget drives taxes. So, until we get some of these bigger key issues answered in the Golden Dome there, Chairman Kaufmann and I are just kind of continuing to work through some -- there are some other things we're working on right now as well too. But, to the big income tax question, we really need to get a budget and figure out what we're able to -- what our spending requirements are as well as what we're able to return back to taxpayers.

Murphy: Does it get to a point where the clock starts to be your enemy and maybe you just run out of time?

Dawson: Oh, I think there's a certain opportunity to do something. But we talk about bigger and bolder things, to be very frank, the longer it takes for us to get some of these issues resolved, the window does close on some of those opportunities. Now, that being said, Iowans are still going to get an income tax cut next January and they're still going to get one after that. When we passed the largest tax cut in Iowa history in 2022, that was a four-year plan. So, even walking out and not having some of these issues resolved, Iowans are still getting tax cuts the next two years and we still will have this TRF, the monies in the taxpayer relief fund, to answer those larger questions.

Murphy: Representative Jacoby, as a democrat would you be okay with the clock running out on further income tax cuts? Or are democrats open to a discussion of accelerating, as Senator Dawson said, tax cuts that are already in place and making those happen even faster, the rates going even lower?

Jacoby: Well, we're very open to talk about tax cuts as long as the tax cuts are affecting hardworking families in Iowa. I think part of the problem that we're seeing now, not only in this year's political climate, but the fact of the matter is we haven't reviewed what we've done in the past. The tax expenditure committee was eliminated. So, we have not sat down to review everything we have done since the 2013 property tax cut bill, the 2016 and 2017 tax cut bills and also what we're looking at doing now in terms of income tax. I agree with the Senator, it is the largest tax cut in history. Where we probably disagree is who the tax cut is for. So, that tax cut really benefited people that made over a million dollars a year. If you were a middle class or lower middle class, that effect was much less. So, we're looking -- it truly isn't a bumper sticker, it's what we review each bill by, people over politics. Who will benefit from these bills? And how will that make their life easier during times when money is tight and where we're seeing layoffs like we are with the plant closing in Perry, Iowa.

Murphy: So, Representative Jacoby, you're saying you've already had some cuts, let's take some time to see how those work out?

Jacoby: Yeah, let's see if they work.

Murphy: And Senator Dawson, your boss, Senator Whitver, Majority Leader, said something sort of similar like he doesn't feel necessarily as big a sense of urgency to get something done this year because of those ones that are already in place. Is there energy in the caucus to make this happen this year?

Dawson: Oh, there certainly is. But, again, I think where the Senate Caucus and Chairman Kaufmann and I start off this conversation at the beginning of the year is more just instead of looking at the two and three years out, what is the long-term vision? And that's kind of how we developed our tax plan this year is what the long-term vision is for those monies in the taxpayer relief fund because the one thing we don't want to do is make a misstep and lose that one-time opportunity where we have some surpluses structural right now, that gives us visibility on some things. Ultimately, I think we all understand the taxpayer relief fund is a one-time opportunity. And how can you best use that opportunity? I think our caucus wants to get it done the right way as well as Chairman Kaufmann.

Sostaric: I want to stay on the Governor's tax cut proposal for a little bit first before we get to more details on yours. But typically, tax cuts are planned when they are passed, they are for future years. And the Governor proposed cutting taxes in the current fiscal year, or in the current tax year. And the Legislative Services Agency predicts that that would cost $1.6 billion in the next fiscal year. Can the state handle that?

Dawson: Well, that's why we ended up running that bill out separately. We wanted to be able to show fiscal notes there. I think there's two perspectives on how to use those monies in the taxpayer relief fund. This is something we've dealt with in the last few years where you could send a one-time check out to Iowans. And that is essentially what the Governor's proposal would do is just try to get that money out as soon as possible to Iowans. But I think it goes back to what is your long-term vision? And what is your strategic viewpoint of the TRF? That's where Chairman Kaufmann and I just, there's nothing wrong with having a viewpoint of just getting it back to Iowans as soon as possible. But, if these are one-time monies in that taxpayer relief fund, which by law, the letter of law is to be used for income tax relief, there might be another opportunity to do it out there. And so, that's just two different ways of trying to get it back to taxpayers.

Sostaric: And Representative Jacoby, do you think the state could handle a $1.6 billion getting that money back out to taxpayers in one year?

Jacoby: No, we could not. I think it's plain and clear that any of kind of cut of that nature will put our public schools in danger, put our Medicaid in danger and quite frankly, to be blunt about it, sending a check back in a short-term thing in an election year seems a little convenient to me. I think what we need to do is look at the long-term effects and what we can do to control and lessen our tax liability, but not necessarily in a big chunk all at once. Again, until we review the tax policies of the last ten years, I don't think we know where we're going to go in the next ten years. So, and especially with the Area Education Agencies bills hanging over our head, the school budgets have not been determined yet. So, it's a little premature for us to think we send checks back to people in the amount of $1.6 billion when we don't even know what our public school funding looks like, we don't know the future of the AEAs, and we also don't know the future of what our Medicaid liabilities will look like.

Sostaric: And Senator Dawson, the Governor also proposed a property tax break for commercial child care centers. Is that something that Senate republicans are planning to put through the legislature?

Dawson: Well, it's certainly something we're contemplating, kind of what Representative Jacoby said but on a different topic, we passed one of the largest reforms in property taxes last year. And our local governments are going through that budgeting process right now. So, one thing we do want to be cognizant of is how that interacts, the Governor's proposal, with current law going into effect because there will be some tax shifts inside there. And very appropriate, it's kind of a unique idea. But we've got to make sure as we're hearing a lot of input from local governments right now, that anything we do is thoughtful on that front of property taxes because we said last year, we made multiple bills over multiple years and we need to give some predictability as well too.

Sostaric: And Representative Jacoby, how much do you think that property tax break for child care centers would go toward helping the issues of access and affordability that people are seeing with child care?

Jacoby: Well, the part of the bill that you're referencing we just passed out of the House Ways and Means this week and off the floor. So, we believe that that would be a significant help for child care providers if we relieve part of their property tax burden.

Henderson: One last part of the Governor's bill that we want to talk about briefly would be a business tax cut, the taxes that businesses pay into the unemployment trust fund. Representative Jacoby, is that something that you're hearing as a priority in the Iowa House of Representatives?

Jacoby: It's not a priority of House democrats today. We are still reviewing where we are with changing of the tables, the tax tables, and also the tax, once again, liability, unemployment insurance liability for the number of people that will be experiencing unemployment over the next six months. Again, the closing of the plant in Perry, the downsizing for Deere, we're worried that people who will see a sudden change in their life and lifestyle will need some form of help in their transition in the employment world. So, I don't know that this is the right time to change the tables and, quite frankly, change the employer's input into that tax fund.

Henderson: Senator Dawson, when a panel of three legislators were discussing this, even the republican members of the Iowa House said, we don't yet know what the impact of this would be and the concern is that if the state had another recession that the business taxes would have to be raised at that point. Is that a concern in the Senate?

Dawson: Yeah, it absolutely is a concern in the Senate as well too. We always talk about lessons from COVID, right, and people maybe draw different conclusions from COVID. But one of the greater Iowa success stories is how solvent our trust fund was going into that. And when we came out it gave us a lot of opportunities to do some great things in the state, to include the tax cuts that we're doing right now. So, even though COVID is a few years behind us, that is a lesson that is still the forefront of our head, we want to make sure anything we do has its stress test, it makes sense and that it touches employers in the greatest way possible.

Murphy: Senator Dawson, Statehouse republicans are proposing a couple of constitutional amendments that would deal with tax policy. One would require a two-thirds vote of the legislature to raise income taxes, which we've been talking about. And the other one would require no more than one tax rate above zero. I wanted to ask you about the two-thirds vote one. You've heard, I have no doubt, from some people with concerns about that proposal, that it would hamstring future legislatures if they ever got into a point where during a recession or whatever else would feel the need to increase state revenue making it harder by requiring that two-thirds vote rather than a simple majority to raise state revenue. What is your response to that?

Dawson: Well, my response is that Iowa is one of the most fiscally sound states. We have a rainy-day fund, we have an economic emergency fund. And I would like to think that any future legislature, if there is a recession or something along those lines, that the state looks at tightening its own belt first before it goes to the taxpayers. One of the things when we talk about vision, that's the great thing about talking with Chairman Kaufmann, we're now in a phase where some of these tax cuts are starting to work in. But we're starting not just in the next couple of years, but what is our long-term vision? And that’s where we kind of develop these proposals at and these aren't anything new. There's blue states that have these in their Constitution, there's red states that have it. And ultimately, we come down to is when we talk to our employers, when we talk to our families out there, and the biggest question we hear from colleagues on the other side of the aisle, how sustainable are these cuts? Well, if we put something like this in the Constitution these cuts are going to be very sustainable and it's going to give people predictability on their rates. It should always be harder to raise a tax in this state than it is to cut it. And ultimately, I think Iowans roundly support this. We've seen polling out there, 67% of Iowans, 67% favor a two-thirds restriction in the Constitution on the income tax. I think it's one of the best things we can do for a long-term vision and give Iowans and businesses predictability.

Murphy: Representative Jacoby, feel free to weigh in on that if you'd like. But I also wanted to ask you about the other piece, essentially the flat tax constitutional amendment. The other states that have that have a blue hue, if not are outright blue states, Colorado, Illinois, Michigan, Pennsylvania. You would be okay with Iowa joining them as having a flat tax requirement in the Constitution?

Jacoby: Well, I think you have to look first is if, quite frankly, you want that in the Iowa Constitution. And it really is a punch in my gut when we try to make changes to our Constitution in Iowa. There's a reason it's so tough to change our Constitution and it's because our Constitution is more solid than Colorado's or California's. You've mentioned that both blue and red states have these constitutional amendments. There's also many states that do not, both blue and red, do not have a constitutional amendment. I find it ironic that it takes 51% to determine all future votes have to be two-thirds. It seems to me if you pass a constitutional amendment in the House it should be 67 people, in the Senate, held me with my math, 34, 35. I think you need a super majority to pass that along too. Iowans do agree that tax cuts are important or their tax liability is a concern for them. I think most Iowans don't necessarily believe that it means a constitutional change.

Sostaric: Senator Dawson, you have mentioned already your plan that would gradually eliminate the state income tax over time. Does that plan guarantee that the rate would eventually get to zero?

Dawson: Yes. Left untouched and for future legislatures not to meddle their hands into it, it's an automatic proposal, it takes us down to zero eventually. What we would do is the concept is essentially we would put these monies in the taxpayer relief fund into a trust and this trust would be contracted through IPERS, which is one of the most notable names here in the state, it manages all of our state employee pensions. And this trust would contract through IPERS just to grow it like any business grows money and they reinvest in their business or any family saves up for a 401K. And that trust every year with the earnings would then be used to slowly over years buy down the income tax rate. It might be a tenth of a percent one year or two-tenths of a percent the next year. There has to be a revenue trigger on that as well too, to make sure those work in tandem. But again, as opposed to looking at the same $3.5 billion in this taxpayer relief fund right now, that was kind of our out of the box discussion Bobby and I had behind the scenes is instead of looking at saving money, why don't we grow this pot of money for Iowans? And I think we have a lot of good positive support for that right now.

Sostaric: Representative Jacoby, do you think that gradually eliminating the income tax in that way where it could potentially take decades to do would be sustainable for the state budget and for state services in Iowa?

Jacoby: I would say absolutely not. Frankly, the state income tax is about 62% of our general fund right now. And if you look at other states, Colorado was mentioned before, you have to look at what our economy is based on. In Colorado, if you go out there where both of my daughters live, you're paying anywhere from a 10 to a 14-cent sales tax. To make that work in Iowa, you would have to do two things. You would have to raise sales tax to 14 cents and you would have to start taxing food. That's the only way to make the budget come close to working. The economy in Iowa is different than the comp states that were mentioned because when you have Tennessee and Colorado, you also have a tourism level that if far above what we're seeing in Iowa right now. We do have people visiting Iowa, but we don't have near the people visiting Iowa that are visiting those other states that have a different matrix for their tax base.

Murphy: Senator Dawson, that is always the question on this, the long-term question, can something like that be sustainable? Can you eventually eliminate the income tax that, I think it's closer to half of the state's general fund revenue, and still provide all the services, still fund schools, still fund Medicaid, not do everything else that the state currently does? Are you confident it would be able to do that?

Dawson: Yeah, that's always -- I've heard that feedback. It has always perplexed me a little bit because I remember going into this session as we were kind of working on this plan behind the scenes everyone was like oh, you're going to have to raise the sales tax three, four, five cents. Well, here Representative Kaufmann and I roll out a plan that does not involve any sales tax increases at all and is a 30-year migration or 20, whatever it would be, it depends on the earnings of the trust and depends on state revenues, where we migrate into a new system without raising the sales tax one penny. We're just using that taxpayer relief fund and growing it like a 401K with those earnings using to buy down over time. I think it's probably the most responsible and forward-thinking way to actually get this done without massive tax shifts. We see it in Nebraska right now, they have a proposal over there to do a 40% property tax cut. Well, how are they doing that? They're going to raise the sales tax 2 percent, so it would be one of the highest sales taxes in the nation. That's something that Representative Kaufmann and I sat down from day one and we're like, we're not doing tax shifts, we're doing tax relief in the end. I think this is a unique way to go about doing it without raising the sales tax and still providing those services.

Henderson: Gentlemen, we have about five minutes left for our conversation, other tax issues to discuss. However, the House Ways and Means Committee this week passed a bill that would give the landowners along the proposed Summit carbon pipeline route an avenue in court to find out if eminent domain could be used under the court's guidance for that project. Why?

Jacoby: Well, I think what we've seen with a number of landowners is they have had to invest thousands and thousands of dollars in the process because it favors the pipelines over the landowners. What we're trying to do is flip that script that says they have to have just cause in looking at that land for a pipeline before landowners have to invest so many of their dollars in attorneys and so many of their dollars circling, coming to the Capitol, going to meetings just to fight what they think is an obtrusive way of using their property. And it passed unanimously out of Ways and Means and any time you have an eminent domain bill that has that kind of bipartisan support, I sure hope that we clear it off the House floor and I hope that the Senate does too.

Henderson: Well, Senator Dawson, Chairman Kaufmann when the House took up that bill said, this is the fifth bill that we've had trying to address the pipeline issue. Will it be addressed in your committee?

Dawson: Yeah, I typically don't comment on bills until it comes over there. We like to see the final product. I've had a brief conversation with Chairman Kaufmann. I think it's a unique way going about maybe compared to some proposals last year and it's absolutely a priority for, it's no doubt a priority for people in the House as well as some people in the Senate too. The problem becomes with this whole issue is you have left wing progressive states like California that set up all these carbon restrictions out there in the first place for our Iowa farmers to sell ethanol, this is the predicament we get put in. And so, trying to work through that is how we support our farmers. But how we deal with some of these out-of-state regulations that are getting heaved upon us makes things complicated. But I think it's definitely something to take a look at.

Murphy: As we wind down to our last couple of minutes here, a couple of things to cover quickly. Representative Jacoby, in your chamber, in your caucus, there is some support moving for resurrecting Iowa's film credit program to provide tax incentives for movies to come and shoot in Iowa. Given what happened the first time this program was around and the fraud that was revealed in that, is this a good idea?

Jacoby: I think it's a good idea at this point in time. If anything, you can do from what happened in the past is learn from it. And I believe both republicans and democrats have put the correct guardrails on this and that opens the door, opens the door for more production in Iowa and maybe more film productions might help with that decrease in income tax over the next 20 or 30 years too.

Henderson: Senator Dawson?

Murphy: Senator Dawson, is there interest on the Senate side?

Dawson: Well, how we run the Senate Ways and Means Committee is we have to figure out what tax relief we're delivering for all Iowans first. The budget drives taxes and once we have a budget and a tax overall policy established then we can look at some of these additional things.

Henderson: Katarina?

Sostaric: Representative Jacoby, democrats have proposed extending Iowa's sales tax holiday from two days to two weeks. Briefly, how much do you think that helps kind of the target population of parents getting their kids ready for the school year?

Jacoby: I think it excites parents and families to do their shopping during that particular time period of getting that sales tax relief. I think what we're also looking at is instead of eliminating income tax, do we want to eliminate sales tax, because sales tax can be very hard on struggling families, it's very hard on people who are buying a low-end car. I think we need to extend that sales tax holiday for more weekends and also take a look at our sales tax structure as a whole.

Henderson: Erin?

Murphy: Real quick in our last 30 seconds, Senator Dawson, you spoke on the floor a few weeks back in passionate defense of the state criminal investigation into sports betting, which is close to home for you --

Henderson: Because you work for the Division of Criminal Investigation.

Murphy: Sorry, thank you. We've now seen that DCI has found that maybe there was some overreach there. Do you have any updated thoughts on that investigation into that program? Dawson: Well, to be clear, I have no involvement in that investigation, I work in a separate unit in DCI. What I would say simply is this, I think it's unfortunate that DCI is getting drug through the mud I think in a lot of areas when ultimately why we're in this mess is because the NCAA is ultimately incompetent in getting rules established and the punishments on these things. So, as opposed to focusing on the NCAA, I think a lot of entities out there decided to make law enforcement the whipping bag. The legislature has asked law enforcement to ensure gaming is safe in Iowa. No one is saying these athletes did not commit a crime. And I think ultimately the blame lies on the NCAA.

Henderson: Ultimately, I am in charge of the time here and we are out of it. Gentlemen, thank you for joining us on this edition of Iowa Press.

Jacoby: Thank you.

Dawson: Thank you.

Henderson: You can watch every edition of Iowa Press at iowapbs.org. For everyone here at Iowa PBS, thanks for watching.

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Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation.

The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure.

Elite Casino Resorts is a family-run business rooted in Iowa. We believe our employees are part of our family and we strive to improve their quality of life and the quality of lives within the communities we serve.

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Across Iowa, hundreds of neighborhood banks strive to serve their communities, provide jobs and help local businesses. Iowa Banks are proud to back the life you build. Learn more at iowabankers.com.

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