The 2018 Legislative Session Convenes
According to a recent study, Iowa is the third best managed state due to strong fiscal responsibility, a AAA credit rating, lower than average government debt, and a well-managed public pension system. Another study says that Iowa is the best state in the country for middle class families because of affordable housing, low college tuition and low child care costs.
Additionally, our unemployment rate is at its lowest point in 16 years, we lead the nation in high school graduation rates, and we are a leader in K-12 education funding.
The Governor’s Thoughts on Education
Governor Reynolds budget is supporting an increase of $54 million for schools through the school aid formula. This equates to a 1.5% increase in the Supplement State Aid (SSA) amount with some additional changes, namely the continuation of last’s reduction for Area Education Agencies (AEAs) and the continuation of the state picking up the property tax increase that results from setting SSA (Property Tax Replacement Payment or PTRP). With this change, state support for schools would increase from $3.180 billion to $3.234 billion.
The Governor also mentioned an additional option for school choice. Iowa has a couple of options currently available to families, namely open enrollment (where a student can enroll in a public school district other than their home district), and school tuition organizations (STOs, a program allowing in-need students financial support to attend a non-public school of their choice). There have been discussions in past years about established Education Savings Accounts (ESAs) which give parents the opportunity to find the best educational setting for their child and receive their share of state support in order to access that setting. The Governor mentioned a new option in her speech: the ability to use 529 plans to pay for non-public, K-12 tuition expenses. 529 plans are tax-deferred contribution plans that parents can use currently to save money for their child’s college tuition in the future.
Moving Forward with Managed Care
House Republicans recognize that there are still issues with the transition of Medicaid and will be working hard to support patients and providers in their districts.
In her Condition of the State address, Governor Reynolds acknowledged that mistakes have been made in the rollout of managed care but made a commitment to make it right. She has brought in new leadership to manage the program, with experience and expertise in managed care.
Almost 40 other states are using managed care for their Medicaid programs and have successful programs. There is no reason Iowa can’t be successful as well.
The reality is that if we go back to the government-run system, costs will again skyrocket which would result in cuts to K-12 education and/or tax increases.
A Fairer, Simpler Tax Code
This week Governor Reynolds’ Condition of the State address outlined the broad themes and goals she had for tax reform this session and in the future.
Her speech first explained that although the recently enacted federal tax reform will be good for Iowans in terms of their federal tax liability—it has some negative state tax liability implications. Iowa is one of three states that have full federal deductibility—this is the ability to deduct from Iowa income (on your Iowa return) the federal taxes you paid. Because our federal taxes will go decrease under the new federal tax reform, Iowans will not have as much federal tax to deduct from Iowa income. This will cause their Iowa tax liability to go up. It was largely because of that potential tax increase on Iowans that the governor recommended eliminating federal deductibility from Iowa’s tax code. She also cited the desire to more permanently free Iowa from the effects of tax decisions made by Congress.
The governor went on to outline that personal income tax rate reduction was the next step in reform. She stated the goal was having Iowans keep more of their hard-earned money. There were no specifics on brackets, rates, or the amount of the reduction—just a rate reduction generally.
Modernizing Iowa’s tax code was also on the governor’s list of priorities. Little details were given on execution of this goal—but general support for main street fairness was evident.
Iowa’s high corporate tax rate was also mentioned as something that needed to be addressed—but the governor stated that this was not the year to do that. Instead, she stated that she would create a bipartisan task force to analyze and review every tax credit for effectiveness and to make recommendations to the legislature next year regarding which incentives were a good return on Iowa’s investment.
Finally the governor concluded that tax reform in Iowa would be a multi-year effort, but that in the end we would have a completely reformed, modernized and more competitive tax code.