Economy

Reject the “Blue” State Model

A recent editorial by the Des Moines Register asks whether the push for “smaller” government in Iowa has achieved a point where it is “too small to work.” The editorial argues that those who believe in a “smaller, more efficient” government fail to address how limited government can solve some of the policy problems confronting Iowa. In other words, the Register’s editorial contends that Governor Kim Reynolds and the Republican-led legislature have hollowed out government by controlling the growth of spending and reducing taxes. This argument is not only untrue but ignores the progressive “big government” record of failure.

As a result of prudent budgeting, Iowa’s fiscal house had a solid foundation as the COVID-19 pandemic hit. Currently, Iowa has a budget surplus, the reserves are full, and revenues continue to grow. If Iowa followed similar tax and spend policies as our neighbors in Illinois or other progressive “Blue” states such as New York or California, our fiscal house would not have been able to withstand the economic recession triggered by the pandemic.

High individual and corporate income tax rates are not only harmful, but they deter economic growth. To make Iowa’s economy more competitive, Governor Reynolds and the Republican legislature passed a tax reform measure in 2018 that lowered both the individual and corporate tax rates.

Iowa’s high tax rates must be reduced. Iowa competes with other states for both jobs and people. Projections from the Census show states without an income tax or with low tax rates are gaining people. Montana, which recently passed a conservative budget and lowered its income tax, will gain one seat in Congress. In contrast, an exodus is occurring from high tax states such as New York and California.

In addition to lowering Iowa’s tax rates, the Governor and the legislature have been prudent with state spending. This does not mean that spending has declined. From 2013 to 2020, Iowa’s budget has grown 1.6 times faster than population growth plus inflation. Last year’s budget (FY 2021), which was passed during the pandemic, was considered a “status quo” budget with spending only slightly greater than the previous year.  This is hardly austerity-style budgeting.

Governor Reynolds and Republican legislators have also made workforce development and education major priorities. Since 2011, Iowa has “invested nearly $1 billion” in public education. If policymakers want to spend more money on areas such as public safety and the justice system, then reform will need to occur in the two largest areas of the budget: education and Medicaid (the Department of Human Services). In 1995, spending on those two programs consumed 47 percent of the budget. Today, it is over 75 percent.

Discussions can be had about increasing funding for various programs, but government needs to remember the money they are spending comes from taxpayers. Every day, households and businesses prioritize spending. Government should be held to the same standard. Progressives often argue that government needs to spend or “invest” more, but they fail to acknowledge how much spending should increase and whose taxes should be increased to generate the required revenue.

Spending more money and hiring more government employees does not necessarily translate into better public policy. As an example, North Carolina has followed a policy of fiscal conservatism: “Since 2011, North Carolina legislators have kept government growth in check even as they increased spending on teacher pay and Medicaid. They have cut taxes and built-up healthy reserves to get through natural disasters and economic recessions. People and jobs have come to North Carolina in response leading to faster economic growth,” wrote Joseph Coletti, a Senior Fellow who specializes in fiscal policy at the John Locke Foundation.

Governments cannot tax and spend their way to prosperity. Iowa should look to other states such as North Carolina, Utah, and Florida that demonstrate fiscal conservatism works. Iowa does not want to become another Illinois or California.

President Ronald Reagan once said, “Well, the trouble with our liberal friends is not that they’re ignorant; it’s just that they know so much that isn’t so.” This statement applies to the “Blue” state policy model.