By Jon Dunwell
Since the 2022 tax cuts were approved, some have attacked Iowa Republicans for lowering income taxes and eliminating tax on retirement income. They claim this bold action will leave the state’s budget short on money in future years, following the path taken by Kansas a decade ago. But these empty claims always fail to include one big difference between Iowa and Kansas – Iowa’s Taxpayer Relief Fund.
What is the Taxpayer Relief Fund? It is an account in the State Treasury that holds unanticipated state revenue to be returned to taxpayers. For funds to be deposited in the Taxpayer Relief Fund, state revenues must exceed estimated projections for state tax collections as determined by the three-member Revenue Estimating Conference (REC). The difference between actual collections in tax revenue and the REC projection is deposited into the account once the fiscal year’s books have been closed.
When the Fund was created in 2011, the account was originally called the Taxpayer Trust Fund. The maximum amount that could be deposited per year was limited to no more than $60 million. If there were funds deposited into the account, they would be returned to taxpayers through a special income tax credit on Iowans’ state income tax return
As part of the 2018 state tax reform law, the Taxpayer Trust Fund was changed to the Taxpayer Relief Fund. The limit on the amount of funds that could be deposited into the account was stripped from the law, as was the automatic return of the funds via the personal income tax credit. Instead, the Fund would be dedicated to tax relief which would be determined by the Legislature.
So how does the Taxpayer Relief Fund work? Let’s use the final numbers for Fiscal Year 2022. When the Legislature passed the FY 22 budget in May 2021, the revenue forecast called for state collections of $8.1686 billion in tax revenue. At the close of Fiscal Year 2022, actual state revenue amounted to $9.8034 billion. The difference between the two figures is $1.6348 billion, which is the amount deposited into the Taxpayer Relief Fund.
Thanks to two consecutive years of record tax collections, the Taxpayer Relief Fund holds $2.6979 billion. Thanks to forward thinking and learning the lessons of Kansas, Iowa is in a solid financial position as the tax reduction package goes into effect over the next few years.