Net revenue

Iowa State’s net income is expected to decline slightly over the next two years

DES MOINES, Iowa – The Revenue Estimation Conference (REC), a panel consisting of Kraig Paulsen, director of the Iowa Department of Management, Holly Lyons, director of the Tax Services Division of the Legislative Services Agency, and panel audience member David Underwood, foreseen that the net state income decrease slightly over the next two fiscal years.

Even with this decline, government revenue should be higher than pre-pandemic levels over $1.1 billion, comparing actual fiscal 2019 revenues to estimated net fiscal 2024 revenues.

The panel last met in December. Compared to December, the panel increased its projections for tax revenue and net state revenue for fiscal year 2022 for the general fund. They forecast tax revenue to be $10.54 billion, an increase of $191.5 million from the December projection and a 2.6% increase from actual taxes collected over the course of the year. of the 2021 financial year. Furthermore, they predict that the state’s net income with transfers will be $9.17 billion at the end. fiscal 2022, an increase of $110.5 million over the December projection and a 4.2% increase over actual net sales in fiscal 2021.

The projected decline in revenue is expected to take effect in fiscal year 2023, when the recent tax reform bill begins to be implemented (the 3.9% flat tax for personal income tax will not will not enter into force by 2026).

The REC estimated $9.156 billion in net revenue for fiscal year 2023, down $14.8 million (0.02%) from the estimated net revenue for fiscal year 2022 .

Compared to the revised FY2022 level, the estimated changes include a 1.6% decrease in gross personal income tax, a 4.2% increase in gross sales/tax use and a 6.3% reduction in gross revenue from corporate income tax. A slight decrease in total tax revenue of $1.3 million.

The REC estimated that net income will decline further in fiscal year 2024. They forecast net income, including transfers, to be $8.960 billion, down 2.1% from the revised projection for fiscal year 2023.

“General fund revenue growth on a fiscal year basis is up more than 7.8% so far this year, and we are nearly three-quarters through the fiscal year. The current rec estimate is three percent annual growth. Personal income tax and sales tax far exceed projections. The catch is that most of our growth last year happened after February. So year-over-year comparisons from now will likely decline,” Lyons said at the REC meeting.

“National and Iowa employment numbers are still below pre-pandemic peaks, but they are rising steadily each month, slowing a bit in the final months of calendar year 2021. Wage rates are higher as firms compete for labor. And, back to basics, as long as employment numbers continue to improve, tax revenue growth should remain positive,” she added.

Lyons noted that Russia’s invasion of Ukraine brings economic uncertainty.

Paulsen agreed.

“It’s hard to come to any conclusions about Iowa’s economic future. Conditions continue to be divisive and noisy, pandemic-related circumstances add to the complexity, and the Russian invasion of Ukraine only exacerbates the challenge of drawing conclusions with certainty,” he said. .

Paulsen said Iowa’s economy continues to grow amid inflationary pressures.

“Although the pace of growth has slowed slightly, demand continues to increase despite rising prices. The labor market remains tight and companies continue to hire. Potential interest rate hikes from the Federal Reserve are unlikely to derail growth. Employers’ personal balance sheets are strong enough to withstand modest rate hikes. Downside risks appear minimal over the next year, even after acknowledging labor and inflation challenges in the supply chain. In fact, fiscal years 22 and 23 continue to show strong economic growth for Iowa. Pressures affecting fiscal year 24 are more difficult to predict,” he said.

“Although too far to draw a solid conclusion, there seems to be a greater risk of a slowing economy and therefore a weakening of state revenues in 24. Although I see no reason to conclude that this downturn will lead to economic contraction,” Paulsen added.

Neither cited the proposed tax reform as the cause of the drop in revenue.

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Republican leaders said they were encouraged by the report.

“The projections released today by the REC are very encouraging and reaffirm once again why we have worked hard this legislative session to pass the largest bipartisan tax reform bill in our state’s history,” the governor said. Kim Reynolds in a released statement.

“Our bold tax cuts were necessary as we continue to over-collect hard-earned money from Iowan. But with the new tax law of a flat and fair individual tax rate of 3.9% d ‘by 2026, and the elimination of state income tax on pensions, among other tax reforms, Iowans will see more money in their pockets and not in the hands of the government, ” she added. “These new projections also reaffirm the fact that we have stable revenues flowing into our state, and that these revenues will ensure that our key priority areas such as education, public safety and mental health continue to be adequately funded. .”

Iowa Senate Majority Leader Jack Whitver, R-Ankeny, was also encouraged by the projections.

“Today’s REC projections confirm that even amid global economic challenges, Iowa is in a strong fiscal position. The reserve accounts are full, the taxpayers’ trust fund will have nearly $2 billion, and the economy is growing. The tax relief bill is viable, the budget is balanced, and Iowa is on the right track,” he said.

Iowa House Speaker Pat Grassley, R-Iowa, also said projections point to a strong economy.

“The strong projections from the Revenue Estimates Committee this morning reaffirm what we already know about the strength of Iowa’s economy. Thanks to the governor’s leadership and responsible budgeting by House Republicans, the economy of Iowa remains strong. So strong that we were able to deliver the largest tax cut in Iowa’s history while continuing to fund Iowa’s priorities in the state budget. is a good time to be an Iowan.

Democrats expressed the opposite sentiment.

“Today’s REC report shows that Gov. Kim Reynolds and GOP politicians’ ‘tax cuts’ will massively benefit the ultra-rich and big business, while leading to likely future budget cuts to public schools, colleges and universities. law enforcement and our health care system,” Iowa Senate Minority Leader Zach Wahls, D-Coralville, tweeted.