DES MOINES — Statehouse Republicans — fortified by 2020 election successes — hope to resume revamping tax policy amid revenue uncertainty caused by a deadly pandemic and a damaging derecho.
Gov. Kim Reynolds and the GOP-led Legislature hope a vaccine brings some semblance of normalcy as they build a new state budget without the billions in federal aid received last year.
“We’ve always approached it in a way for uncertainty,” said House Speaker Pat Grassley, R-New Hartford, though “we didn’t know that it would be this uncertain.”
That cautious approach likely will be on display again when the General Assembly convenes Monday.
State revenue projectors have estimated tax collections will grow by 3.7% this fiscal year. That has bolstered GOP resistance to calls for tapping into more than $1 billion in state reserves to aid in COVID-19 recovery.
“I’m kind of in the ‘wait-and-see mode’ to see what the governor comes with, with her Invest in Iowa, if she’s going to move that forward or a variation of that,” said Rep. Lee Hein, R-Monticello, chairman of the House Ways and Means Committee.
At the same time, he indicated it may take six months or a year “to kind of see how things shake out with the virus, and then we can move forward.”
Reynolds has not said whether she will resume her call for a major tax-swap plan sidelined when COVID-19 hit in March, but has said any pause in tax-cut plans is temporary.
“As I’ve said time and time again, we’re not done yet,” Reynolds recently told members of the Iowa Taxpayers Association.
Likewise, Senate Majority Leader Jack Whitver, R-Ankeny, said as long as Republicans control the Statehouse, tax cuts will be at the top of the agenda.
“We’re going to look at ways to continue to make our tax code better and continue to reduce taxes where needed,” said Whitver in a recent interview, “and so this session won’t be any different in that way.”
Reynolds said Iowa is in a position of relative strength after finishing a rocky fiscal 2020 with a $305 million budget surplus and reserves topping $700 million. Following revisions in December by the state Revenue Estimating Conference, fiscal analysts in the Legislative Services Agency projected the state’s surplus could grow to $443 million and emergency reserves will be $784 million by June.
Sen. Joe Bolkcom, D-Iowa City, said the state should use the surplus to remove state taxes on unemployment benefits, just as taxes were waived on Paycheck Protection Program payments to Iowa businesses and on federal stimulus checks of $1,200 and $600 that Iowans received or are slated to receive.
Bolkcom said Iowa should make speeding vaccine distribution a top priority — especially at schools, packing plants, grocery stores and other sectors with essential workers.
“Absolutely, the state can afford a relief package,” Bolkcom noted. “We’re in the middle of a pandemic. The biggest thing we need to do is get the vaccine out, get people to take the vaccine because that is the only thing that’s going to get the economy rolling again, that is the only thing that is going to open the schools up safely.”
Doing that “is going to take more state resources, and we have the money,” he said. “We’re collecting taxes. (Republicans) want to stockpile it to give another tax cut to rich people. That’s what they do.”
Grassley said he would resist efforts to tap into the “rainy-day” fund.
The House speaker said he expects a number of proposals will be considered but in the context of maintaining a “responsible” budget.
“We’re going to have more strain and asks and requests on our budget than I think we’ve had in my time in the Legislature,” he said.
Iowa still has $47 million in federal CARES Act money to distribute. Also, recently enacted federal legislation will send Iowa millions to distribute vaccines pay for testing, food assistance and child care, and to perform other public health functions.
“While the state of Iowa really is in great fiscal health when you consider the year that we just went through ... we’re not through COVID-19 and so we have to continue to monitor it very carefully and continue to see what the impact is to revenues,” Reynolds told a recent news conference.
Last session Reynolds proposed a 1% sales tax increase to support her Invest in Iowa plan while cutting income taxes by 10%. It would fund water quality efforts and cut local property taxes by shifting mental health costs to the state and phasing down property tax levies.
The plan — which Reynolds said amounted to an overall tax reduction — would still generate about $540 million a year for the state, with $172 million going to natural resources, conservation, outdoor recreation and water quality improvement. More than $80 million a year would be earmarked for mental health care.
“While the pandemic cut our discussion short on those and other tax reforms, I want you to know they’ve just been delayed, not forgotten,” Reynolds told the taxpayers association.
Legislative Republicans have indicated an openness to possibly easing or removing triggers in 2018 tax cut legislation to accelerate some provisions.
But Whitver said Senate Republicans were “very, very hesitant” to raise the state sales tax “and it would have to be a very, very significant overall reduction to have that conversation.”