Taxes

Governor Reynolds Focuses on Moving Iowa Forward

Governor Kim Reynolds, in her Condition of the State address, outlined a pro-growth policy agenda that will continue to strengthen Iowa’s economic recovery from the COVID-19 pandemic. In addition, she also proposed a bold education reform package that will create more opportunities for parents and children across Iowa. As the legislature begins to formulate policy, it is imperative that they continue to focus on conservative budgeting, lowering tax rates, curbing excessive regulations, and expanding educational choice policies.

 

This past year Iowa was confronted with unprecedented challenges not only from the COVID-19 pandemic, but also environmental emergencies in the form of a drought and a powerful derecho storm. Nevertheless, Governor Reynolds and the Republican led legislature are starting the legislative session on financially solid ground. The Iowa economy is recovering with unemployment at 3.6 percent and an impressive 36 percent growth in gross domestic product (GDP) during the third quarter of 2020.

 

As a result of following fiscal conservatism, Iowa’s budget is in a healthy condition with over $300 million surplus and more than $770 million in reserves. Both Governor Reynolds and the Republican legislature deserve credit for making difficult choices and funding only the priorities of government. Just as families and businesses across Iowa are making difficult economic decisions, state policymakers need to continue to focus on limiting spending and funding the priorities of government.

 

In Governor Reynolds speech she spoke of working to expand on earlier policies that are creating more opportunities and making Iowa more economically competitive. During the previous legislative session, the legislature passed a landmark occupational licensing reform measure. Governor Reynolds affirmed, “Iowa now has the most flexible licensing reciprocity and recognition” law in the nation.

 

To build upon this law, Governor Reynolds is calling to enact legislation that would review licensing boards and commissions. Iowa policymakers can look to our neighbor, Nebraska, who has enacted this very type of occupational legislation. Establishing a review process for licensing and boards is important not only for transparency and accountability, but also to ensure that regulations are not creating barriers which prevent people from earning a living.

 

Iowa policymakers should create a review process that utilizes both a sunrise and sunset provision. Existing licensing boards and commissions should have sunset provisions which require the legislature to not only review the regulations and requirements, but also require a vote to renew them. The same is true for proposed licensing regulations. A sunrise provision would require the legislature to review a new licensing regulation to ensure it does not create a barrier to employment. Both provisional requirements would prevent special interests from trying to control competition in the workplace through license requirements. Governor Reynolds stated that the occupational licensing reform law “sends a signal to the country that Iowa is open for business.”

 

Iowa’s tax climate is another crucial factor that determines our economic competitiveness. In 2018, Governor Reynolds and the Republican legislature passed a historic tax reform law that began the process of reducing the individual and corporate income tax rates. This year, Iowa’s top corporate income tax rate fell from 12 percent, the highest in the nation, to 9.8 percent.

 

In 2023, the top income tax rate is scheduled to be lowered to 6.5 percent, but only if two strict revenue triggers are met. For the rate reduction to occur, first, the state revenue must surpass $8.3 billion and second, it requires revenue to grow at least four percent during that fiscal year. Revenue triggers are not necessarily bad policy, but they should not create barriers to make rate reduction more difficult.

 

For Iowa to be more competitive further income tax reductions are needed and Governor Reynolds agrees. In her speech she called for continuing the “conversation about cutting taxes,” and said we can “start by getting rid of the unnecessary triggers that were put in place in 2018.” Eliminating the triggers will provide more certainty and will allow the much-needed rate reduction to occur in 2023.

 

Finally, Governor Reynolds called for the legislature to provide more educational choice for parents. The COVID-19 pandemic has brought education policy to the forefront as parents struggle with educating their children while trying to prevent the “COVID” academic slide from occurring. Governor Reynolds not only called for schools to be open 100 percent, but she also argued that parents need more choice.

 

“School choice shouldn’t be limited to those who have the financial means or are lucky to live in a district that’s confident enough to allow open enrollment. So, let’s make choice an option for everyone,” stated Governor Reynolds.

 

The Governor is not only proposing to expand open enrollment, but also provide more flexibility with charter schools and Education Savings Accounts (ESAs) for “students who are trapped in a failing school.”

 

Iowa policymakers have an opportunity to provide parents with the ability to seek the best educational opportunity for their children. In addition, providing greater choice in education will create more competition within Iowa’s educational system, which will strengthen schools.

 

These are not the only issues that Governor Reynolds addressed in her Condition of the State address, but they show she is leading Iowa in a pro-growth direction. Governor Reynolds and Republican legislature have proven to the nation that following fiscal conservatism leads to economic growth, budget stability, and more opportunity for all Iowans.