Iowa’s tax cut: Who will play now and who will pay later? – Iowa Capital Dispatch

“There are two paths people can take. They can either play now and pay later, or pay now and play later. Regardless of the choice, one thing is certain. Life will demand a payment.” — John C. Maxwell 

Play now, pay later. That sums up Iowa’s “historic” income-tax cut, which Gov. Kim Reynolds signed into law last week.

Who gets to play? Republican politicians, including Reynolds, who will almost certainly reap the election-year benefits. The wealthiest Iowans will also disproportionately benefit, as the top personal income tax rate drops to 3.9% while none of the exemptions and tax shelters used by the rich are affected.

I have to confess, as someone focused on saving for retirement sometime within the next decade, I won’t sneeze at having a little more in each paycheck and the prospect of retirement income that is free of state tax. I am happy that the retired farmers in my family will not have to pay state taxes on the cash rent on their land. Every little bit helps.

But I’m also not under the illusion that this tax cut represents any kind of windfall for me or for most Iowans. There will be a cost, sooner or later. For some, it will come sooner than for others.

Who will pay?

Let’s assume, for a second, that Republican politicians are right when they say this tax cut is “sustainable.” To me, that means the state can maintain its current level of service into the future based on economic growth under the new tax structure. I have my doubts, but let’s play along for a minute.

Under this scenario, we can expect that state government support for services won’t get worse — but it also will not ever get better. What does that mean?

For public schools, it means surviving on supplemental state aid that grows at less than the rate of inflation. That means more rural consolidation and longer bus rides for kids. Teachers will continue retiring early or leaving the profession for easier jobs with better pay, which means larger class sizes for students, lower professional standards and more (gasp!) online instruction to allow more diversity of course offerings. Schools already have had to cut foreign language classes, art, band and the like because they can’t hire instructors.

Families with college-bound kids can expect to pay more in tuition increases for state universities than they are saving on income taxes. Even before this tax cut, state support for higher education has eroded while tuition has increased. For most families, tuition hikes will far exceed what they save on income taxes.

Under Iowa’s current tax structure, the state has not found the money to clean up its waterways. The costs are already on the horizon as communities like the Des Moines metro area start planning for larger treatment facilities to handle the pollution and more diverse sources of drinking water. Outdoor recreation, which found new popularity during the pandemic, has been starved by lawmakers to the point that park rangers are being evicted from state-park housing because of the maintenance backlog.

Retirees who are saving the state tax on their investments and pensions will want to consider that health care in Iowa, even with the current infusion of federal COVID cash, is also suffering from workforce shortages. Many Iowa nursing homes are already chronically understaffed, leading to the type of horror stories that we read every time we look at the state inspection reports. Home health care options have the same staffing issues.

That’s under the current state revenue landscape, which over the past two years has been flooded with billions of federal dollars for COVID-19 mitigation and relief, health care costs including Medicaid and mental health care, direct payments to businesses, taxpayers and farmers, rent assistance and so on.

What happens if Democrats are right about right about the sustainability of this tax cut once that federal money dries up?

Sen. Joe Bolkcom, ranking member of the tax-writing Ways and Means Committee, says one consequence is likely to be higher property taxes. “So as the state’s capacity is diminished to support things, people are going to want some of those services delivered. And local governments are going to probably be asked to pick up some of the slack for it,” he said.

Property taxes, of course, are particularly hard on people who live on fixed incomes, including retirees, and also on farmers. So enjoy those tax cuts, folks.

Voters should also take note that this tax cut will be phased in over several years. So by the time the bill comes due, the governor and many of the politicians who voted for it will be out of office. They’ll play now, and let someone else pay later.

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