The Des Moines Register’s recent editorial argued a top priority for the Legislature is to raise revenues. Iowa is experiencing a tight budget due to less than expected growth in revenues. Reasons for the slow revenue growth include the lackluster agricultural economy symbolized by low corn prices and loss in growing online sales taxes. The Legislature must address a shortfall of $45 to $90 million. As the national economy continues to improve, Iowa’s economy needs a shot of adrenaline to create economic growth. To raise revenue and create economic growth the Legislature must address spending and work to begin lowering tax rates across-the-board to provide both tax relief and economic opportunities.
Iowa suffers from a high, complex, and outdated tax system. Our top individual income tax rate of 8.98 percent is one of the highest and our top corporate tax rate of 12 percent is the highest in the nation. Iowa also is in desperate need to review its tax credits and incentive programs to see if they are relevant, that is, serving the taxpayer interest.
The Register’s editorial argues “cutting taxes and reducing the size of government is not a vision for the future.” The editorial further states “taxes are not evil.” First, the Register is wrong in its assumption that advocates for limited government policies believe that all taxes are evil. The purpose of taxation is to fund the priorities of government. Tax policy should not be used for social engineering or to fund the excesses of big government. An economic philosophy based upon limited government is hardly evil, but following in the tradition of the American Founding.
Second, the Register argues that limited government policies of tax and spending reductions have harmed states. Progressives often utilize Kansas as an example of failed tax cut policy, but they forget the Kansas legislature failed to address spending. Iowa is required to balance its budget and therefore any tax policy must be prudent to avoid deficits. Recent trends are demonstrating states with lower levels of spending and tax rates are seeing economic growth. North Carolina is the gold standard example because they successfully reduced both spending and lowered tax rates to create a robust economy.
North Carolina, which faced a $3 billion budget shortfall in 2011-2012 undertook a responsible, pro-growth approach to solving their fiscal problems. They lowered spending and then phased in tax cuts to both individual and corporate tax rates. The lower tax rates in addition to lowering spending, not only solved their budget crisis, but created economic growth. By lowering tax rates and controlling spending, North Carolina is providing states with a policy blueprint demonstrating limited government policies work. In addition, because of lowering tax rates and spending the state budget is seeing both revenue and budget surpluses.
The Register argues more revenues are needed to fully fund a plethora of state programs. Progressives often cry that more funding is needed for new programs and existing programs need to be fully funded. “No government ever voluntarily reduces itself in size,” stated Ronald Reagan. Government will never have enough revenues because history demonstrates government grows as fast as weeds unless spending is controlled. Advocates of big government constantly shout to “fully fund” all sorts of programs, but government will never say it has enough and will constantly demand more and more tax dollars.
The solution to finding more revenues will not be found in increasing taxes or creating new taxes, but rather by lowering spending and tax rates that will generate more economic growth. States that have followed tax and spend policies such as Minnesota, Illinois, California, Connecticut, among others are struggling with slow or even dismal economic conditions compared to states that have lowered tax rates and spending. In addition, throwing more tax dollars at public policy problems does not guarantee problems will be solved.
Iowa’s economy is showing some positive signs with nearly full employment, but we do face some serious challenges. For the Legislature to generate more revenues the best solution will come from lowering spending and tax rates and not from increasing taxes and spending.
