Kim Reynolds promises more tax cuts as she reports $1.83 billion budget surplus

Gov. Kim Reynolds promised another round of tax cuts Wednesday as she reported a $1.83 billion budget surplus from the past fiscal year.

“Some see a surplus as government not spending enough, but I view it as an over collection from the hard-working men and women of Iowa,” Reynolds said in a Wednesday news release. “We’ve seen what the powerful combination of growth-oriented policies and fiscal restraint can create, and now it’s time for Iowans to directly receive the benefits.”

Iowa also has $902 million in reserve funds, and $2.74 billion in its Taxpayer Relief Fund, which may only be used to reduce taxes.

Reynolds has said she plans to eliminate Iowa’s income tax by the end of her term in 2027.

“I look forward to cutting taxes again next legislative session and returning this surplus back to where it belongs — the people of Iowa,” Reynolds said Wednesday.

A Democratic leader in the Iowa Senate criticized Reynolds for putting “rich corporations and special interests first.”

“While Gov. Reynolds is again slashing corporate taxes and promising more giveaways to come, middle-class families still aren’t getting ahead,” Sen. Janet Petersen, D-Des Moines, said in an emailed statement.

Why does Iowa have such a large budget surplus?

Iowa has ended the last three fiscal years with surpluses of more than $1 billion.

Republicans, who control the governor’s office and hold a majority in the House and Senate, credit their conservative budgeting. Iowa lawmakers can spend up to 99% of the state’s ongoing revenue, but they have budgeted far below that limit in recent years.

In the 2023 legislative session, lawmakers approved a $8.52 billion budget. They could have spent up to $10.4 billion.

The Legislative Services Agency predicts a $2 billion surplus at the end of fiscal year 2024, which began July 1, 2023, and ends June 30, 2024.

More: Kim Reynolds signs $8.5 billion budget into law. Here’s where the money will go:

Democrats have criticized Republicans for leaving so much money unspent.

“We are stockpiling taxpayer dollars,” Rep. Beth Wessel-Kroeschell, D-Ames, said earlier this year. “This money belongs to the taxpayers. There are lots of ways that we can give it back to the taxpayers through quality services.”

What does the surplus mean for Iowa taxes?

As Reynolds pledged, expect to see more tax cuts on the way from Iowa Republicans.

A 2022 law is still phasing in, gradually lowering the top income tax rate and corporate tax rate until both are flat taxes. Reynolds announced last week that the corporate tax rate would drop from 8.4% to 7.1% sooner than expected.

Iowa’s income tax rate will reach a flat 3.9% by tax year 2026. Reynolds and legislative leaders say they plan to eventually eliminate the income tax in Iowa.

“My goal is to get to zero individual income tax rate by the end of this second term,” Reynolds, who won a new, four-year term in 2022, told the free-market Cato Institute in February. “So we’re really focused on that. We would have probably taken a look at this year, bringing it down just a little bit more, but I wanted to just watch what was happening with the environment, with inflation and recession.”

Senate Majority Leader Jack Whitver, R-Grimes, said Wednesday that the budget surplus “shows it is time for bigger and bolder income tax cuts.”

Stephen Gruber-Miller contributed to this article.

Katie Akin is a politics reporter for the Register. Reach her at kakin@registermedia.com. Follow her on Twitter at @katie_akin.

This article originally appeared on Des Moines Register: Iowa’s $1.83B surplus opens the door for more tax cuts, Reynolds says