Republican governor of Iowa calls for sales tax increase, other tax cuts

DES MOINES, Iowa (AP) — Iowa Gov Kim Reynolds asked lawmakers on Tuesday to consider increasing the state sales taxes by 1 cent to raise money to boost funding for water quality, the environment and mental health care programs.

A 1-cent sales tax increase is expected to generate about $540 million in new revenue a year starting in 2021.

Some of the funding will go into a water quality and environmental programs voters passed 10 years ago in a constitutional amendment but the legislature never funded.

Reynolds is proposing using $100 million a year for water quality and $52 million a year for conservation and outdoor recreation programs from the sales tax.

Some of the state previous funding for such programs will move into the new fund, however, raising concerns about whether it’s a net gain for water quality and the environment.

Reynolds said the increase in water quality funding is about 31% and for conservation about a 14% increase.

To offset the tax increase she proposed an income tax cut by an average additional 10 percent beyond the rates set in the 2018 tax cut for next year.

Reynolds said the top income tax bracket in Iowa a year ago was nearly 9% and with a new round of cuts she proposes it would be 5.5% by 2023.

She also proposes a property tax cut of $77 million by reducing mental health care funding raised through the property tax levy and budgeting $80 million from the state general fund to pay the cost. That means the state would pay about 70 percent of mental health care costs and counties 30 percent. Counties now pay all the costs through property taxes.

Reynolds proposal is in her annual Condition of the State address delivered to lawmakers on the second day of the 2020 session.

Democratic legislative leaders expressed concern that funding mental health programs with a sales tax may not guarantee funding in the future.

“I think Iowans need assurances beyond just what she’ll do. Who knows how long she’s going to be our governor, but we need to make sure that there’s stable funding in place,” said Senate Democratic leader Janet Petersen.

Republican leaders said tax changes must reduce the tax burden and Reynolds plan appears to do that, but they wouldn’t commit until seeing details.

“I think that’s in line with what most of us want and whether we can get everything together and get something passed through both chambers and on the governor’s desk still remains to be seen,” said Senate President Charles Schneider.

House Democratic leader Todd Prichard said his biggest concern is with tax cuts whether the state can meet obligations to pay for priorities.

“We have to fund education. We have to fund our health care system. We have to do those things that Iowans expect of us from the state. How she’s going to make that happen I don’t know. Again, it comes to a question: is that a burden shift? Is that a burden shift to the sales tax which is a regressive tax?

Liberal action group Progress Iowa said the tax shift isn’t a positive move for Iowans.

“Governor Reynolds continues to push snake oil solutions at the expense of Iowa families. Today she promoted an income tax cut that would be paid for in large part by raising the sales tax, which hits hardest on working families,”said Matt Sinovic, the group’s executive director.

Other budget areas for which Reynolds seeks additional funding:

—Schools: $103 million in new funding for local school districts, an increase of about 2.5%.

—Broadband in rural areas: An additional $15 million and adjustment to the state match so Iowa can continue to leverage private and federal funding to build out broadband.

—Childcare: Expand Early Childhood tax credits. Currently, they are available to families making $45,000 or less. Reynolds recommends that be doubled to $90,000.

Reynolds also recommended policy changes to lawmakers including a renewed request to pass a constitution amendment that no longer bars felons from voting after they’ve served their sentence and an amendment that says the Iowa Constitution does not create a right to an abortion.