This November, Iowans will consider the future of income tax in the state.
Amendment One to the Iowa Constitution will be on the Nov. 3 ballot. It would make it so that income-tax increases on individual or corporate income could only happen with a two-thirds supermajority in both legislative houses.
Thursday evening, Co-Director of the Center for Cyclone Civics Kelly Shaw moderated a discussion in the Memorial Union about Amendment One between Anne Kinzel, president of the League of Women Voters of Ames and Story County, Chris Hagenow, president of Iowans for Tax Relief, and Liesl Eathington, a research scientist with ISU Extension.
“Amendment One is about much more than this for next year’s tax rate,” Kinzel said. “Amendment One is really about the wisdom of permanently limiting the ability of Iowans tomorrow and their representatives to respond to an unknown future.”
According to the Center on Budget and Policy Priorities, Iowa has used over $900 million from reserve funds to account for previous tax cuts.
“But the future is unknown,” Kinzel said. “Math is a known process, and the fiscal math tells us that Iowa’s once substantial reserves are estimated to be depleted in three years or so. Faced with that prospect, what looks like a reasonable policy choice in the form of Amendment One looks unsustainable for our future.”
The League believes that future Iowans are entitled to the majority rule democracy seen at state and federal levels. Future legislators should be able to construct a policy that fits their circumstances, including income tax changes.
“Over the past 10 years, the state of Iowa has made tremendous progress on income taxes,” Hagenow said. “Looking back 10 years ago, we had one of the worst income tax regimes in the entire nation. Our top marginal rate was just shy of 9%. When you put these into national rankings, we would consistently rank very close to the bottom. 45th, 46th, depending on the year. Fast forward to a series of tax reform bills that the legislature has enacted over the past 10 years.”
Iowa now has a flat individual income tax rate of 3.8%.
“So what we have with Amendment One is a chance to secure, at least in much stronger terms, those gains, which the people of Iowa have gained in this series of tax reform bills,” Hagenow said.
Hagenow argued that state revenues will grow by an estimated 3-4% annually, so the Amendment will not interfere with Iowa’s resources or force the state to increase other taxes.
“For voters and for researchers that have looked into this, these are some of the key concerns,” Eathington said. “What happens to the tax burden if these are put into place? What happens correspondingly to public service provision? What happens to the legislative process? Does it make it more complicated? Does it bog it down? Does it slow it down?”
Eathington researched how other states handled similar policies and found that each state experienced a different outcome.
“The takeaway here is not that research is worthless,” Eathington said. “It’s that this is a really complicated issue, and the context always matters. So if you’re making your decision based on the experience of one or multiple other states, it’s probably not going to apply to Iowa.”
Following this, the floor was opened to questions from attendees. State Senator Herman Quirmbach asked Hagenow and Kinzel if they would close the deficit by cutting funds to education or raising sales tax.
“The legislature retains one very important power, that’s to decide how much money they’re willing to spend,” Hagenow said. “There is quite a bit of money left in our reserve funds. This legislature will control spending, and I’m not making this a partisan issue. I would like to reframe this entire debate as what’s good for the family budget. Because Iowans, whether it’s their income tax, their sales tax, or their property tax, have seen the cost of government, with whatever’s going on with our economy and everything being more expensive. Iowans are tapped out.”
Kinzel responded to Hagenow’s answer.
“Let’s talk about fairness,” Kinzel said. “What we do know is if this passes, we will have to see some cuts. I think it’s inevitable. And those cuts, I don’t know how they’ll be made. Legislators will decide some mix of a raise in a sales tax and some drop in the level of services. But those are things that many Iowans count on today. And they will no longer be available to them. And if we think that only the top 1% of our society creates growth in our state, we’re delusional. It is the work of everyday Iowans who come first, many of them with two or three jobs, that grows our state. If we have a tax policy that is regressive to them, then shame on us.”