By O. Kay Henderson (Radio Iowa)
A state panel is predicting state tax revenue will fall nine percent during the current state budget year compared to the 12-month period that ended June 30, 2025.
The group met today and reduced the tax estimate it released in March by another $375 million and cited factors like Iowa’s rising unemployment rate, falling soybean prices and the state income tax cut that took effect in January. Iowa Revenue Estimating Conference chairman Kraig Paulsen, the governor’s budget director, told reporters Republican lawmakers who passed the tax cuts planned for this, socking away $6 billion in unspent taxes over the past several years that can be tapped to balance the state budget.
“Is it the most comfortable spot? No,” Paulsen said, “but…the State of Iowa is in a good financial condition.”
Recent federal tax reductions are having an impact, too, since Iowa tax policies automatically adjust to mirror federal changes. Jennifer Acton, fiscal division director for the Legislative Services Agency, said declining consumer confidence could be concerning if trends continue. “Businesses appear more hesitant to hire and are leaving more jobs open due to softer sales and uncertainty,” Acton said during the group’s meeting. “…Meanwhile, manufacturing and finance, the two largest employer sectors in Iowa…have lost jobs over the past year.”
Former State Banking Superintendent Jeff Plagge, the other member of the panel, said there are some worrisome signals in the ag economy. “Grain producers are going to have a difficult year, as they did last year,” Plagge said.
The State Revenue Estimating Conference predicts Iowa tax revenue will “stabilize” and begin to grow in 2027 — if there’s no recession. Governor Reynolds, in a written statement, said now that Iowa’s 3.8% flat income tax is “fully implemented, Iowans have more of their own money than they did at this time last year” and that’s “just as it should be.”
Democrats like Representative Dave Jacoby of Coralville say the state’s finances are plummeting. “I think it’s plain to see that the Republicans have been squeezing the tax balloon for years,” Jacoby said, “and that balloon has finally popped.”
Senator Janet Petersen of Des Moines said the tax cuts have created “a billion dollar hole” in the state budget and state reserves will eventually run out. “This isn’t just a dip in revenues. This is a historic drop,” said Petersen, the top-ranking Democrat on the Senate Appropriations Committee.
