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Governor signs broad tax reduction bill with controversial mental health funding update

Iowa Gov. Kim Reynolds speaks during an event.
Iowa Gov. Kim Reynolds speaks during an event. (Rodney White/Des Moines Register via AP, Pool)

Governor signs broad tax reduction bill with controversial mental health funding update

June 21, 04:00 PM June 21, 04:01 PM

The tax reduction package and mental health funding realignment signed by Gov. Kim Reynolds is described by Iowa’s Republican legislators as a significant achievement.

Senate File 619 passed on May 18 in an extended legislative session to address specifically tax issues, and was signed by the governor on Wednesday.

“Today, the Iowa Senate made Iowa more competitive,” Senate Majority Leader Jack Whitver, R-Ankeny, said last month. “Reducing the top income tax rate to 6.5% means Iowa families will keep more of the money they earn. Lower income tax rates make this state more attractive to small business and people looking for a new home,” he said.

“Phasing out the inheritance tax ends the unjust practice of taxing the dead. Eliminating the mental health levy finally provides actual property tax relief for Iowans. Iowans asked for tax relief and the Iowa Senate has answered those calls,” Whitver added.

Sen. Dan Dawson, R-Council Bluffs, chair of the Ways and Means Committee, concurred.

“Senate Republicans promised bold tax reform when the session started in January and this bill delivered,” he said. “This bill includes eliminating the tax triggers, eliminating the inheritance tax, provides tax relief for small business, and provides tax cuts for Iowa families. Senate File 619 is the tax bill Iowans deserve and I am proud to have it pass the Iowa Senate.”

However Senate minority leader Zach Wahls, D-Coralville, commenting at the end of the session on his blog, saw this year as a failure.

“With our Build Back Better plan, Iowa Democrats introduced more than two dozen bills to help Iowans get back on our feet.… Unfortunately, Governor Reynolds and the Republicans chose not to work with us on these proposals.” Wahls says their ideas would have secured long-term economic growth.

Democrats and Republicans widely disagree on the pros and cons of the 2021 session; likewise the tax bill votes closely followed party lines. Sen. Pam Jochum, D-Dubuque, supported most provisions of the bill, but transferring the mental health funding to the state was a deal breaker.

Jochum told The Center Square the result will reduce funding for the 14 mental health regions. The mental health provisions change regional property tax funding to statewide support over the next two years. Jochum said a system long in place will not work well at the state level, “It’s better when you give it to the people closest to the situation.”

Jochum says she takes mental health care very seriously and personally. Her intellectually disabled daughter, Sarah, died two years ago of brain injuries from a fall down their stairs. Still she thinks that dollars for mental health might not drop, “I truly hope I’m wrong, but right now I think it’s not going to work out like they proposed.”

Of course, the dollars saved are of high importance to all parties. Estimates of the tax savings for individuals over the next 10 years amount to a billion dollars. That’s about $125 million per year. Yearly savings per person are projected at $40.

Of course, figuring out what any specific family or business will gain varies widely.

Dr. Ernie Goss is a regional economist who oversees the monthly Mid-America Business Conditions report.

Goss does not downplay the aggregate benefits of a billion dollars over 10 years even though $40 may sound insignificant. And he told The Center Square the law has so many provisions that it defies providing an adequate overview for consumers and what it will mean for them.

Jochum thinks the bill was simply too massive and should have been broken down into smaller pieces. She says she could have voted for many of those pieces.

Kristine Tidgren, director of the Center for Agricultural Law and Taxation at Iowa State, wrote on an Iowa State website the legislation has eight major provisions and 18 additional ones. In other words, Goss adds, the average person would need a tax accountant rather than an economist to fully explain the impact.

Nevertheless, Goss does see several of the provisions as positive for economic growth. Transferring mental health costs away from local property taxes to the statewide level is helpful, “Probably a good change and needs to be done. Property taxes can be quite burdensome. I’ve owned a home in Iowa.”

Goss also says that removing federal taxes as a deduction on Iowa taxes was a smart move. That previous formulation made Iowa appear to have a greater tax burden than other states which have already dumped that deduction. The state thereby becomes less attractive to internal expansion and outside investment. Neighboring Missouri and South Dakota, in particular, have lower tax rates than Iowa.

The Hawkeye state joins three other states that have reduced income tax rates since the pandemic began: Idaho, Oklahoma, and Montana. That data comes from the Tax Foundation.

Contrast that with New York where the pandemic hardly affected tax revenue. Yet Albany recently raised both personal and corporate tax rates. Governor Reynolds says she will seek further tax reductions in the 2022 legislative sessions.

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