Disappearing Income, Jobs, and Gov't Tax Revenue
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The coronavirus is significantly reducing budgets for individuals, businesses, and all levels of government. While this is not surprising, estimates of the impact might be.
A TEF Iowa report authored by economists Dr. Ernie Goss and Scott Strain estimates a total loss of $1.6 billion for the overall Iowa economy from all stages of production, from March 21 through April 11.
- Loss of 243,237 direct and spillover jobs
- Loss of $557.8 million in wages and salaries
- Loss of $73.7 million in self-employment income
- A total loss of $1.6 billion for the overall Iowa economy
Strain estimates, "If this impact were to continue for a 12-month period, you're looking at about nine to ten percent of the gross domestic product for the State of Iowa lost."
Reduced government tax revenue
After Iowa's economy was paused for just three-weeks, state and local tax collections are estimated to take a sizeable reduction in the future as well:
- $37.2 million in sales taxes
- $26.8 million in individual income taxes
- $3.1 million in corporate income taxes
- $36.6 million in property taxes
- $8.3 million in other taxes and fees
- A total reduction of $112.1 million in future state and local tax collections
State budget impact
Before coronavirus, the state's current fiscal year budget was projected to have a large surplus at the year-end of June 30. The need for cuts or tapping into reserves funds prior to June may be small. However, there won't be easy answers for the 2021 Fiscal Year budget whenever legislators return to the Capitol to resume the suspended legislative session.
Senate Majority Leader Jack Whitver said, "I would expect it's going to be a tight budget. Iowans are tightening their belts at home, businesses are tightening their belts. And I would expect state government to do the same."
When asked how governments could offset revenue decreases, Goss urged legislators to resist the temptation to raise taxes because they discourage economic activity.
What does economic recovery look like?
Dr. Goss said, "I initially thought this was going to be a v-shaped recovery meaning a sharp down and sharp up. Then I moved to a u-shaped sharp down, move along the bottom, then sharp up. Well, I've changed that to a Nike swoosh or checkmark meaning a sharp down and gradual increase."
Both economists are optimistic because workers didn't suddenly become less productive and the economy didn't have the types of imbalances typically seen in a recession. "We didn't suddenly lose all the human capital, all the skills that we've accumulated for years. We still have a productive labor force and need to just let them get back to work," Strain explained.
The complete report, including a recorded interview with Goss and Strain, can be accessed on TEF Iowa's website.
Share your comments, concerns, and ideas with the Governor and your legislators:
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We Don't CARE for Needless Spending
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A few weeks ago, we told you about a coalition letter Iowans for Tax Relief signed onto that advocated giving states maximum flexibility on how they chose to utilize dollars received from the federal government via the CARES Act. That letter is still making the rounds in policy circles.
In theory, the CARES Act is intended to help boost the financial situation of the states as they fight COVID-19. But all of those dollars may not be as helpful as they would seem. Our friends, Sarah Curry and Joe Coletti, wrote for The Hill this week:
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Congress outlaws spending money from the CARES Act on any item already funded in a state's budget. It bans use of CARES Act funds for one-time tax forgiveness for citizens and businesses, or to make up for lost tax revenue. So some states have started picking new projects, increasing employee pay, and finding myriad ways to spend the fruits of Washington's largesse. All with the expectation of another round of federal funds.
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The work Ms. Curry does in Nebraska for the Platte Institute and Mr. Coletti does in North Carolina for the John Locke Foundation is similar to what ITR does here:
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Every day, we fight needless spending by our state and local governments. That includes spending forced by federal mandates with the promise of more federal money if the state behaves properly. Many state and local governments are still trying to avoid furloughs and other savings measures that businesses and families have already experienced. The governments wait for money to pour down eventually from Washington. They have more than enough federal funding, but not the freedom to use it well.
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Iowa, just like North Carolina and the federal government, delayed its income tax deadline until July, putting off the collection of critical tax revenue. Before the effects of the pandemic began rippling across our state, Iowa was expecting to have a budget surplus and its rainy day funds were full, equal to roughly 10% of the annual general fund budget.
Given the strong financial position Iowa was in earlier this spring, we may not need more money through a fifth COVID-19 relief package that compels more government spending with lots of strings attached. Iowa may simply need flexibility to offset lost revenues and forgive tax bills our citizens can't afford.
This week, Senator Joni Ernst said, "We would like to see the dollars that have already gone into those states be used to help bridge gaps that communities are facing because of loss of revenue."
Ernst added that some states, "are sitting on money right now because they don’t have that built-in flexibility. And so within our own discussions here in Congress, we’d love to free up some of that money that has already been pushed out to the states for the use of local communities and counties."
ITR was pleased to read about Senator Ernst's support for additional CARES Act flexibility. The Senator continues to be a strong advocate for Iowans. Hopefully, the rest of Iowa's federal delegation, and the rest of Congress for that matter, join Senator Ernst in freeing up CARES Act dollars.
Could lead to property tax increases
Without additional flexibility at the local level, municipalities that depend heavily on sales tax revenue may face pressure to impose significant property tax increases due to a reduction in consumer spending.
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Will the federal COVID-19 economic
impact payments be taxable in Iowa?
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No. The COVID-19 economic impact payments authorized in section 2201 of the federal CARES Act, whether in the form of a rebate or a refundable tax credit, will not be included in Iowa taxable income or added back as part of an individual's reportable federal income tax refund for Iowa individual income tax purposes.
This important guidance from the Iowa Department of Revenue, under their Income Tax FAQs, seems to confirm something ITR has been advocating for – that federal stimulus payments will not be subject to Iowa tax. A number of legislative leaders had been supportive of ensuring the payments would not be taxable, but there was uncertainty...until now.
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'Unprecedented' uncertainty awaits lawmakers as they craft the state budget - CBS 2
Axne Introduces Bailout Bill for State and Local Governments - Caffeinated Thoughts
Reynolds allows more Iowa businesses to reopen Friday - Radio Iowa
Iowa Awarded Over $70 Million in Federal Funding to Help Schools Impacted by COVID-19 - WHO TV
Polk County forgoes tax cut as pandemic hobbles horse racing, other revenue sources - Des Moines Register
A full list of everything opening in the state today (May 8)- KCCI
Coronavirus Tax Relief Resources - Internal Revenue Service
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Getting back on track
Getting our economic train back on the tracks
Deregulation can fuel recovery
Expanding educational opportunities with 529 expansion
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