Real decisions about to begin

When the arguments move from campaign ads to the halls of Congress and the Statehouse, the real decisions begin: Will we have fair and equitable tax policy that pays the bills for the things we need?

At the federal level, America needs a good tax deal to leave disastrous tax policies from 2017 on the scrap heap, as scheduled, and raise revenue to start restoring fiscal responsibility while reducing poverty.

At the state level, Iowa should be recognizing as the Reynolds administration’s own fiscal analysis confirms: We’re not taking in what we need to sustain current services, and this is certain to continue with any new tax cuts for the wealthy.

Let’s look first at Washington: Portions of the so-called “Trump tax cuts” are scheduled to expire next year. The biggest breaks are concentrated at the top – a projected $61,000 average cut for those making over $838,000, compared to $910 for the middle 20% of taxpayers and less than $400 for people making between $27,300 and $53,400.

The scheduled expiration of these cuts assures a tax debate in Congress in 2025.  A good tax plan — one focused on promoting widespread prosperity — would:

• End the tax cuts for people making over $400,000 as scheduled.

• Pay for any tax cuts that are extended or expanded for lower-income Americans by raising taxes on the wealthy and corporations.

• Boost tax credits for those who need help by expanding the Earned Income Tax Credit and Child Tax Credit, and continuing enhanced premium tax credits for health plans purchases on the ACA Marketplace.

Now, for the Iowa Statehouse. The latest Revenue Estimating Conference estimates – agreed to by Governor Kim Reynolds’ appointee, budget director Kraig Paulsen – predict revenues for Fiscal 2026 (the next budget year) will be $8.66 billion. It’s a nearly $600 million drop from the FY 2025 estimate and it’s a quarter of a billion dollars short of the $8.91billion budgeted for this year.

It won’t immediately require cuts, because by intentionally budgeting about 20% below available resources, Iowa has built up a surplus. So that one-time money can be used to keep us out of illegal deficits – temporarily. But it’s short-term thinking that will doom some or all of our priorities in education, public safety, health and environmental quality, not all of which will be able to be sustained.

Neither the service cuts nor the tax cuts help low- and middle-income Iowans, so lawmakers could take a page from the federal policy ideas noted above and expand the state EITC while creating a new state Child Tax Credit. Doing so would be a better use of one-time surplus money than to pay for tax cuts for the rich, and a chance to strategize on ways to keep those expansions in place without using surplus dollars.

Iowa lawmakers in 2025 will have to start looking at these hard realities. They might not want to talk about them, and they might not do so in public. But that reality is lurking in the shadows for legislators in the future, unless better choices come first.

Mike Owen is deputy director of Common Good Iowa. Contact: mowen@commongoodiowa.org

For more on the federal tax issues ahead, see this piece by Chuck Marr and Samantha Jacoby at the Center on Budget and Policy Priorities: https://www.cbpp.org/research/federal-tax/principles-for-the-2025-tax-debate-end-high-income-tax-cuts-raise-revenues-to