How can Iowa make sure its recent tax reform is fully implemented, including the adoption of fewer and lower tax rates in 2023? The only proven way to lower tax rates is with spending restraint. Some of us in our personal lives have learned Dave Ramsey’s lesson that you cannot out-earn your own stupidity. No state can out-tax bad budgets. Iowa’s 99 percent spending limitation needs to be strengthened by a state constitutional spending limitation amendment.
This advice was not hatched by Republicans in the 1980s, and is not a misapplication of the family model to government. It has been recognized for centuries across continents. Jean Jacques Rousseau, the 18th century French philosopher whose ideas led to modern liberalism and progressivism, recognized that it is more important to slow spending than to increase revenues. “If one examines how the needs of a state grow,” he explained, “this will often be found to happen in about the same way as it does for private individuals, less by true necessity than by an expansion of frivolous desires, and often expenses are increased solely to provide a pretext for increasing revenue.”
For example, new programs to combat the opioid crisis should mean an end to less important programs, not new spending. Iowa cannot borrow or print money like the federal government, which means higher spending translates more directly into higher taxes. Iowans should look to North Carolina to see what is right. North Carolina is demonstrating that lower tax rates and controlling the growth of spending not only leads to economic growth, but also funding the priorities of state government.
North Carolina over the past two decades provides an example of the dramatic difference between higher spending per person and flat or lower spending per person. From 2001 to 2007, spending per person (adjusted for inflation) increased, and taxes followed. Those temporary and permanent tax hikes transferred more than $6 billion from individuals, families, and businesses to the state over ten years.
Over the veto of then-Gov. Bev Perdue, the new Republican majority in North Carolina in 2011 managed to cut taxes and restrain spending. Legislators have kept budgeted appropriations per person, adjusted for inflation, constant since then. Their restraint, combined with economic growth, has made it possible to provide $13 billion in tax relief to citizens over six years, with another $2.8 billion expected in the next fiscal year, while setting aside more than $2 billion in savings and cash to help weather future budget challenges.
In contrast, Iowa’s budgeted appropriations per person adjusted for inflation grew at an annual rate of 2.5 percent between 2011 and the current year. This period has been marked by budget crises, raids on the savings reserve, and other mid-year corrections.
Recent restraint has not yet offset the rapid growth at the start of the period, but Gov. Kim Reynolds and legislative Republicans with their tax reforms have signaled their intent to stay on this new course. If they can do it, and if revenues remain strong, Iowa can be the benchmark for other states in the region.
Iowans could make restraint the true north of government by passing a constitutional amendment that keeps spending per person constant over time. Taxpayers deserve better constitutional protections against the unquenchable appetite for government spending. If lawmakers are successful in keeping spending low and reducing the tax burden they will be encouraging Iowa’s economy to grow and at the same time be respectful of taxpayer’s dollars. Lower tax rates in conjunction with controlling the growth of spending provides the best formula for economic growth and opportunity for all Iowans.
Co-written by Joseph Coletti, Senior Fellow at the John Locke Foundation and John Hendrickson, Policy Analyst for Iowans for Tax Relief