Reynolds proposes individual tax cuts

Amid revenue shortfall

DES MOINES, Iowa — Gov. Kim Reynolds on Tuesday said she envisions a multi-year tax plan for Iowa that would reduce taxes on individuals immediately but hold off on corporate tax cuts for later, an effort she’ll push despite lower-than-expected state revenue that keeps creating budget shortfalls.

The Republican governor gave few details of the tax plan during her Condition of the State address, a major annual speech to lawmakers at the state Capitol. Formal legislation isn’t expected for several weeks, according to her staff.

Reynolds highlighted an interest in eliminating an existing provision in Iowa tax code, known as federal deductibility, which allows Iowans to deduct what they paid in federal income taxes from their state income taxes. Reynolds wants to get rid of the provision because the new federal tax cuts approved in Congress will trigger automatic tax increases for Iowans, creating a windfall to the state.

“It creates complexity and worse, it means that when your federal taxes go down, your Iowa taxes go up,” she said.

Reynolds’ remarks clash with her plan to use the immediate extra money from the federal tax law — about $11 million for the current spending year — to offset an existing budget shortfall of about $35 million.

The Republican-controlled Iowa Legislature, which convened Monday, borrowed about $144 million last year to offset two previous budget shortfalls. Republicans have indicated they want to pay back the borrowing within two years, though Reynolds’ staff said Tuesday she wants to extend that timeline by a year.

How lawmakers manage the state budget while maintaining services in the future will be scrutinized if the eventual tax cut proposal results in a reduction to state revenue. Republicans have vowed to make it work.

“We’ve always said we’re going to be pragmatic about it,” said House Speaker Linda Upmeyer, a Clear Lake Republican. “We are not going to find ourselves in a position where we can’t take care of the things that Iowans expect us to.”

Some Republican-led states such as Kansas have cut taxes hoping to spur economic growth, with disastrous results. Revenue in Kansas fell far short of expectations after tax cuts and the Legislature last year repealed some of the cuts.

Reynolds acknowledged the budget limitations by saying her tax proposal won’t include corporate tax cuts for now.

Iowa’s state income taxes for individuals range up to 8.98 percent and corporate rates up to 12 percent.

“It may take a multi-year effort, but we’re going to completely reform our tax code,” she said.

Reynolds said she wants a bipartisan task force to study state tax credits and offer recommendations before the next legislative session in 2019. The credits are expected to cost the state more than $400 million in the current budget year, which Democrats say shows poor spending priorities within the state’s roughly $7.2 billion budget. Republicans say some programs were created with Democratic support.

Reynolds got multiple rounds of applause during her roughly 44-minute speech, including during a reference to the state’s highly criticized Medicaid program. The program, privatized in 2016, has been plagued by complaints from health care providers and patients about reduced services.

Reynolds defended the program, and reiterated mistakes were made in the transition.

“My promise to you is we will make this right,” she said.

Reynolds has said she wants a state agency to work out issues instead of the Legislature.

Peaceful protests were held at the state Capitol after the governor’s address, with one event focused on raising the state’s minimum hourly wage beyond the $7.25 federal level. Reynolds did not bring up the topic in her speech, instead focusing on workforce training opportunities.

Sonya Sayers, of Des Moines, was one of the protesters. The 54-year-old said she works at McDonald’s and makes $9 an hour. She and others want to raise Iowa’s minimum wage to $15 an hour.

“We’re not thinking crazy. We’re thinking about our lives and surviving,” Sayers said.