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Op-Ed: Fiscal conservatism in America’s
Heartland
By John Hendrickson and Vance Ginn, Ph.D.
“On the economy, the contrast couldn’t be more stark. While Democrats
in D.C. are spending trillions, sending inflation soaring, Republican
leaders around the country are balancing budgets and cutting taxes.
Because we know that money spent on Main Street is better than money
spent on bureaucracy,”
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 Iowa is proving that lowering tax rates and keeping
spending growth low is a fiscal policy that places taxpayers first and supports
more economic growth and opportunity. Since 2018, Iowa Gov. Kim Reynolds and the
Legislature have placed an emphasis on both tax reform and prudent budgeting.
Prior to the latest legislative session, Gov. Reynolds and the Legislature
renewed their commitment to those emphases. The results have been the largest
tax reform measure in Iowa’s history that creates a flat individual income tax
rate of 3.9% by 2026, gradually phasing down the corporate income tax until it
reaches a flat 5.5%, and eliminating all state taxes on retirement income.
This tax reform was made possible by prudent budgeting.
Going into the legislative session, Iowa had a $1.24 billion surplus, along with
a $305 million surplus from the prior year. Because of these surpluses, Iowa’s
cash reserves are at their statutory limit of nearly $1 billion. This means that
Iowa also has more than $1 billion in the Taxpayer Relief Fund, which is
dedicated specifically for income tax relief. The current estimate for FY 2023
could result in close to another $1 billion surplus.
Iowa, like other states, has been flooded with cash from recent COVID-related
federal funds, which wasn’t needed. Regardless, Iowa’s strong financial
foundation was built on fiscal conservatism – not federal largess.
Before the pandemic, Iowa’s economy and fiscal house were strong. Iowa’s economy
has nearly recovered from the pandemic-triggered shutdown and subsequent
downturn in large part because of conservative fiscal governance that has helped
keep state government from excessively infringing on the hard work of Iowa’s
families and businesses.
Gov. Reynolds understands that government is not the only solution to policy
problems. Iowa policymakers need only look to the fiscal policy of states such
as Illinois, New York, California, among others to see how high taxes and
spending work. Critics who argue that the Legislature is depriving education or
other programs of funding need to consider that the actual budget has not
decreased. State spending continues to increase, though Gov. Reynolds and the
Legislature have been slowing its rate of growth while funding critical
government provisions.
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The FY 2023 budget continues the fiscally conservative track record.
Importantly, the income tax reductions are not being “paid” for by the Taxpayer
Relief Fund, rather from the projected growth of the General Fund. The Taxpayer
Relief Fund still has over $1 billion, which is projected to increase.
Gov. Reynolds and the Legislature are following the example of North Carolina,
which serves as the gold standard, for state tax reform. “It’s often discussed
how North Carolina is a national model for smart tax reform, but what the Old
North State doesn’t get enough credit for is how much it has also been a model
for conservative budgeting and spending restraint,” wrote Grover Norquist,
president of Americans for Tax Reform.
Spending and taxes are two sides of the same fiscal policy coin. If the goal is
to reduce tax rates, then policymakers, especially in a state that requires by
law a balanced budget, must control spending. This is what Iowa and North
Carolina have done.
Gov. Reynolds and the Legislature have demonstrated that the priorities of the
budget can be funded, while at the same time enacting meaningful and prudent tax
rate reductions. The significance of the tax reform law will also force
legislators to be more prudent with spending. To avoid a “Kansas-style”
situation, referring to the infamous Kansas tax cuts that resulted in a budget
crisis, the Iowa Legislature must continue to rein in spending growth.
It is unfortunate that President Joe Biden and progressive states cannot learn
from Gov. Reynolds and other conservative states.
President Biden’s reckless fiscal policy is creating record inflation and
threatening a recession.
“On the economy, the contrast couldn’t be more stark. While Democrats in D.C.
are spending trillions, sending inflation soaring, Republican leaders around the
country are balancing budgets and cutting taxes. Because we know that money
spent on Main Street is better than money spent on bureaucracy,” stated Gov.
Reynolds in her response to President Biden’s State of the Union address.
Gov. Reynolds and the Iowa Legislature are demonstrating that fiscal
conservatism is working in Iowa. More states and D.C. should take note.
John Hendrickson is the policy director at Iowans for Tax Relief
Foundation. Vance Ginn, Ph.D., is chief economist at the Texas Public Policy
Foundation, and is the former associate director for economic policy at the
White House’s Office of Management and Budget
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