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September 2012 Brief: Volume 19, Number 25

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Government Always Finds a Need

 

by Deborah D. Thornton

 

“Government always finds a need for whatever money it gets.”
President Ronald Reagan, April 29, 1982
Address to the Nation on the Fiscal Year 1983 Federal Budget

 

State government budgets are finally recovering from the Great Recession, according to the most recent report from the National Conference of State Legislatures, which met in Chicago in early August.[1] Key uncertainties are the federal budget and deficit situation and the European debt crises. Other concerns are projected Medicaid spending under Obamacare, unfunded state pension liabilities, and lack of employment growth. Most state budgets, except for California and Illinois, are now in the black and viewed as stable. “Rainy day” and emergency funds are recovering, having served their purpose.

 

Iowa state government is in a better position than most, with the economic outlook being viewed as “optimistic.” The current drought and resulting crop impacts may change that status. As former Speaker Pro Tem State Representative Jeff Kaufmann (R-Wilton) said in his end-of-session report, “The Cash Reserve Fund will be fully funded at $466.8 million. This is a significant change from two years ago when spending by former Governor Culver and the Democrat majority left the Cash Reserve Fund short of its statutory target (7.5 percent of the Adjusted Revenue Estimate). The Economic Emergency Fund will also be fully funded at $155.6 million, and the Taxpayers Trust Fund will also be full at $60 million.”[2]

 

The FY 2012 net receipts are $156 million, or about 3 percent, over the official Revenue Estimating Conference (REC) report.[3] This money has been collected based on the current tax structure, including current residential, commercial, and apartment property tax rates, and current personal income tax rates.

 

From the low of $5.5 billion in FY2010, at the end of the recession to now, the state budget has grown by over 13 percent. If an average Iowa worker had received comparable salary increases, their paycheck would have grown from $40,500 to $45,800. Most paychecks have grown by significantly less. The most recent report from the Bureau of Economic Analysis (BEA) shows that incomes of Iowa workers grew by 3.4 percent in 2011, far below 13 percent.[4] As a Johnson County resident, my husband and I just received our property tax bill. It went up 3 percent. No getting ahead with those numbers!

 

As Representative Kaufmann noted, the Cash Reserve Fund, Economic Emergency Fund, and Taxpayers Trust Funds are all now fully funded.

 

If your personal income had increased by 13 percent in three years, your backup funds were full, and you still had money in the bank…what would you do?

 

Go on vacation? Buy a new car? Remodel your house?

 

What will the Legislature do? What should they do? Certainly not go on taxpayer funded vacations, buy new government cars, or remodel government buildings. However, as President Reagan noted, government will always find a need for the money they get.

 

Rather than government finding a way to spend the money it has received, hardworking Iowa taxpayers should receive tax cuts. The Iowa commercial property tax rates (3.7 percent) are some of the highest in the country, and apartment tax rates (4.3 percent) are the highest, double the national average.[5] While our top personal income (8.98 percent) and sales tax rates (7 percent) are not as high as in some states, a rate reduction would make Iowa more attractive to new businesses and families.

 

What the Legislature should do is take immediate action, in January 2013, to reduce both the commercial and apartment property taxes by 50 percent. The cuts could be phased in, allowing for a stable process. This cut would bring our rates in line with the national averages. While personal income tax rates could also be reduced, economic growth first comes from businesses. If commercial property tax rates are reduced, those business owners may be able to hire an additional workers, or give current workers a raise. If apartment tax rates are lowered, our students and families who rent could receive a rent reduction – instead of a rent increase.

 

The Iowa House of Representatives tried to pass commercial property tax reduction last spring, but were stymied by the State Senate at every try. Based on the current tax collection reports and the 13 percent growth in the state budget, it would seem that there is little excuse not to reduce taxes.

 

The table below outlines the state budget and tax collection growth over the last five years.

 

 

Endnotes
[1] “Though State Budgets Improve Considerable Challenges Still Exist,” National Conference of State Legislatures, August 7, 2012, <http://www.ncsl.org/press-room/state-budget-update-2012.aspx> accessed on August 7, 2012.
[2] “Fiscal Year 2012 - End of Fiscal Year Receipts with Analysis,” e-mail from Representative Jeff Kaufmann, July 19, 2012, jeff.kaufmann@legis.state.ia.us, quoted with permission.
[3] Ibid.
[4] “Iowa,” SQ1 Quarterly Personal Income, Bureau of Economic Analysis, U.S. Department of Commerce, June 27, 2012, <http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1&isuri=1&acrdn=3> accessed on August 7, 2012.
[5] “50-State Property Tax Comparison Study,” Minnesota Taxpayers Association, April 2011, <http://www.lincolninst.edu/subcenters/significant-features-property-tax/upload/sources/ContentPages/documents/MTAdoc_NewCover.pdf> accessed February 24, 2012.

 

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact him at Public.Interest.Institute@LimitedGovernment.org.

 

Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used:"Reprinted by permission from INSTITUTE BRIEF, a publication of Public Interest Institute." The views expressed in this publication are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.

   

 

 

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