Health-insurance tax bill shows the folly of short-term revenue fixes

The ruling party has had 10 years to prove their thesis that big tax cuts skewed to the wealthy and corporations will make our state stronger and more competitive. Instead they’ve failed to make meaningful improvements in the lives of Iowans and blown a billion-dollar hole in the budget.

Their current gambit? Spending temporary money to defer even more long-term pain and hoping you don’t notice until it becomes the next governor and legislature’s problem.

Governor Reynolds signed HF 2739 last Thursday, just weeks after the bill was introduced. Here’s what the bill does:

• As opposed to longer-term solutions like raising taxes on tobacco products, it makes a short-term cash grab to address a Medicaid shortfall. It authorizes a one-time tax on health insurers over a nine-month period, retractive to January 1, along with an additional General Fund appropriation. Insurance lobbyists have said that their companies will likely pass the cost of the tax on to members, and lawmakers have articulated no plan for sustainable funding beyond October 1.

• It gives lawmakers broader permission to dip into the Taxpayer Relief Fund to fill our state’s overall budget deficit. When there’s a shortfall, the fund is intended to match General Fund surplus dollars one-for-one to fill the deficit. The bill loosens restrictions on the fund for the next three years, allowing the Legislature to balance the budget by spending more freely from the fund.

• It transfers an additional $347 million from the Taxpayer Relief Fund to cover Iowa’s automatic adoption of last summer’s harmful Trump tax cuts. Although the state lawmakers who promoted covering the resulting revenue loss with the TRF have focused on the relatively small breaks that benefit some working people — like temporarily eliminating taxes on overtime on tips and overtime — the full scope of the cuts overwhelmingly benefit the wealthy.

Taken together, these moves belie Governor Reynold’s continued insistence that Iowa “remains in a strong financial position.” Updated revenue estimates released this month confirmed an estimated $1.3 billion budget shortfall for this fiscal year and $1.2 billion for FY 2027, which starts in July. The latest balance sheet shows that the state plans to use 42% of the balance of our remaining General Fund surplus and TRF in just two years.

Without raising more money or making painful cuts to key services, we’ll be facing a revenue crisis by the end of this decade.

Common Good Iowa will continue to advocate for fair, equitable, sustainable state revenue that supports the health and well-being of all Iowans. We’re asking Iowans to support a tax system that preserves and protects the schools, natural resources, and communities we love.