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HOUSE REPUBLICANS RELEASE FY 2007 BUDGET TARGETS
On Monday,
February 6, House Republicans released targets for the FY 2007 general fund
budget. The targets provide the blue print for how the budget will be balanced
without raising taxes while still keeping the commitment to seniors to repay the
Senior Living Trust Fund as well as fund increases for the shared priorities of
education, health care, public safety and economic development.
For FY 2006,
the House GOP budget targets allow for $46.4 million in supplemental
appropriations. Of this amount, $37.5 million is needed for Medicaid. The
remaining $8.9 million goes to the Justice System budget for prisons, indigent
defense and new gaming officers needed due to new casinos coming on line.
After the
$46.4 million is deducted from the balance sheet, that leaves $102.7 million in
the ending balance to fund the property tax credits. In order to fund the
credits at last year’s level, a transfer of $57 million from the Cash Reserve
Fund will make up the difference. However, when the Revenue Estimating
Conference (REC) meets again in early April, it will likely increase the FY 06
revenue estimate by at least $57 million so the transfer may not be necessary.
The $46.4
million needs to be annualized into the FY 07 budget, which means that under the
December REC estimate, there is $280.9 million available for increased spending
in FY 07. Since
HF 2045 (social security and pension tax cut) was approved with 81 votes,
the first year impact of the tax reduction ($18.1 million) needs to be deducted
from the funds available, which leaves $262.8 million for new expenditures.
The House
GOP budget targets are based on the December REC estimate. Due to Iowa’s
economy running strong, there is plenty of revenue to spend without raising
taxes. The Governor is touting that Iowa has the fastest growing economy in the
Midwest and the 8th fastest in the nation.
The budget
increases spending by 5.2 percent compared to adjusted FY 06 but only 3.4
percent in real spending growth. The remaining 1.8 percent is spending that
already occurs (and is not new spending) but is funded off budget.
The targets
keep the commitment to Iowa’s seniors by repaying $83 million to the Senior
Living Trust Fund (SLTF). That is broken down as follows: $25 million from the
general fund, $25 million from the taxable bonds due to the refinancing of the
tobacco settlement and $33 million from the FY 2007 ending balance. It also
addresses the Auditor’s concerns about not building in long-term spending
programs and does not put the state’s financial future in jeopardy.
The House
GOP budget is a reasonable and responsible way to fund the shared priorities of
education, health care, public safety and economic development. It also leaves
room to negotiate with the Governor and Senate, however, any increases need to
come from within the $281 million in available revenue, not by expanding the
size of the pie (i.e. raising taxes).
STATE REVENUE CONTINUES TO EXCEED ESTIMATES
On
Wednesday, February 1, Fiscal Services released the general fund revenue numbers
through the end of January. As has been the case for several fiscal years,
revenue continues to exceed REC estimates.
Through
January, total general fund revenue increased by $83 million, or 2.7 percent
compared to FY 05. This is above the REC estimate of $81 million, or 1.5
percent compared to FY 05. Considering that actual revenue has already
surpassed the estimate for the entire year, it is extremely likely that the REC
will substantially increase the FY 06 estimate during its next meeting (expected
to be in early April).
All major
parts of general fund revenue increased compared to FY 2005. Personal income
tax receipts were up by $7.7 million, or 0.5 percent compared to FY 05.
However, the reason this figure seems low is due to lowering the withholding
tables. Since that money will be coming back to the state in the form of lower
tax refunds, the income tax figure needs to be adjusted. Adjusting for the
reduction due to withholding, personal income tax growth is a strong 4.9 percent
year-to-date.
Sales and
use tax receipts are up $34 million, or 3.4 percent compared to FY 05. After a
very strong showing during the first five months of FY 06, December and January
sales and use tax receipts were off compared to the same months of FY 05.
Whether that is due to comparing FY 06 to an exceptionally strong FY 05 or if it
is an ominous sign for FY 06 remains to be seen.
Corporate income tax receipts
were up $22 million, or 15.8 percent compared to FY 05. Corporate income taxes
are based on profit so it is apparent that the business sector is still doing
very well. Other taxes are up $22 million, or 14.3
percent compared to FY 05. Inheritance tax receipts, bank franchise
tax receipts and miscellaneous tax receipts all increased compared to FY 05. |
There are other signs that Iowa’s economy is running strong. The
unemployment rate in December was 4.5 percent, down from 4.8 percent
in November. One year ago, the jobless rate was 5.0 percent. In
addition, the number of Iowans employed in non-farm jobs is
1,474,200, which is just below the all-time high recorded in
January, 2001, of 1,478,700.
While there is plenty of good news on the revenue side, the fact
that there is additional revenue will continue to put pressure on
the spending side of the budget. House Republicans remain committed
to holding down the level of growth in spending in order to adopt a
sensible and sustainable budget.
RESIST
INCREASES IN TAXES; DON’T RELY ON SHAKY REVENUES
The debate over proposed
increases in cigarette and tobacco taxes reminds me of the old
saying: "Don't tax you, don't tax me, tax that man behind the
tree.” In this case, we know he's behind the tree because of the
smoke that wafts from behind.
Unfortunately for Iowa taxpayers, when we aim tax increases at one
group of people, we often miss the mark, and the bill falls on
everybody's doorstep.
As chairman of the House Ways and Means Committee, I do not support
tax increases on Iowans — ANY tax increases on ANY Iowans. As such,
I do not support raising state taxes on cigarettes or tobacco
products.
Put the health questions aside. One reason I object to proposed
increases is my belief they will never raise the kind of revenue
many project. In state after state, cigarette and tobacco tax
increases have failed to do that. The consequence of a
miscalculation could be staggering.
If we were to increase cigarette and tobacco taxes by a projected
$200 million, the projected revenue would become part of our state
budget negotiations. Politicians being what they are, the entire
anticipated $200 million would be pledged for state spending. So,
what happens when the new tax actually brings in less than $100
million? Who will pay the difference? You know who: You.
Second, it is dangerous and shortsighted to make the state even
more dependent on a revenue source that comes from a behavior we are
trying to discourage through even more punitive taxes. Iowa is
already addicted to cigarette and tobacco tax revenue. Yet,
supporters of the tax increase say their goal is to discourage the
use of tobacco products. Does it really make sense to make the
state even more dependent on such a revenue source?
Assume those who wish to discourage tobacco use are successful and
the price increases caused by higher taxes actually change
behavior. If use of these products falls dramatically, who is going
to fill the huge holes in the state budget? Again, you know who:
You.
We may wish to aim these tax increases at that poor soul behind the
tree trying to sneak a quick smoke, but my concern is such a
strategy will inevitably lead to significant budget holes that can
be filled only by raising income and sales taxes on all Iowans.
That's an unacceptable risk to the budgets of Iowa families I have
been elected to protect.
Government has an insatiable appetite for new money, and it doesn't
discriminate from where it comes, but it does often attempt to walk
the path of least resistance. Right here, right now, that path
appears to lead to higher taxes on cigarettes and tobacco products.
That road also leads straight to the House Ways and Means Committee,
and I also do not discriminate.
I am committed to protect ALL taxpayers, not only taxpayers who use
cigarettes and tobacco but also those who ultimately would pick up
the bill — each and every one of you. © Des Moines Register 2006
(From a guest editorial I authored in Monday’s DM Register)
Ways
& Means Update
Bills introduced in committee this week:
HF 2227- A bill for an act relating to qualified historic
property located in designated enterprise zones and other historic
property, taxation of such property and its owners, developers, and
investors, and including effective and applicability date
provisions.
HSB 651- A study bill relating to a capital gains deduction in
computing the personal income tax and including an effective and
retroactive applicability date provision.
HSB 652- A study bill for exempting certain capital gains from
taxation under the individual income tax and including an effective
and retroactive applicability date provision.
HSB 653- A study bill relating to a deduction for capital gains
in computing individual income tax and including an effective and
retroactive applicability date provision.
HSB 654- A study bill relating to the determination of the
holding period for purposes of certain capital gains under the
individual income tax and including effective and retroactive
applicability date provisions.
HSB 655- A study bill for exempting from sales and use taxes
certain equipment used in transmitting telecommunications services.
Bills passed out of
committee this week:
No Bills passed out of committee this week.
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