Rep. Dan Huseman — January 27, 2020

The Governor gave her Condition of the State address on January 14, 2020. She also released her proposed budget for FY 2021. By law, the Legislature has 30 days to come up with a dollar amount for K-12 schools. House Republicans are working toward that goal as this is being written.

We are proposing an increase of approximately $108 million dollars which includes more funding for transportation costs. This is a little more than the Governor has asked for and is considerably more than the Senate is suggesting!

Negotiations will continue into the weekend because time is running short. The 30- day window is only a couple of weeks away, and House Republicans want to get this accomplished so local schools can go ahead and set their budgets.

Since we have no bills ready for debate, I thought I would spend some time answering a couple of questions I frequently get asked: Where does the state get its money and where does it go?

Answer: The General Fund is primarily comprised of the state’s major tax revenues and includes personal income tax, sales and use tax, and corporate income tax. For fiscal year 2021, these taxes are estimated to make up approximately 93 percent of gross General Fund revenues. The remaining 7 % comes from a combination of lesser taxes including inheritance tax, insurance premium tax, and franchise tax along with fees and other revenue sources. Transfers from other funds to the General Fund also occur.

A general description of the three major sources of General Fund revenues are as follows:

  • Personal Income Tax. This tax was enacted in 1934 and imposed on Iowa taxable income of individuals and states and trusts. Individuals under 65 years of age with a net income of less than $9000 ($13,500 if married) are generally not required to pay Iowa income tax or file a tax return. Individuals who are at least 65 years of age are generally subject to the tax if their income exceeds $24,000 ($32,000 if married). Social Security benefits and all military retirement pay are exempt from taxation. Iowa has a progressive tax structure of nine rates on individual tax ranging from 0.36 to 8.53 percent. Due to the allowance of a deduction for federal taxes, (federal deductibility), most taxpayers do not pay the top percentage.
  • Sales and Use Tax. This tax was enacted in 1934 and imposed on the gross receipts from the purchase of tangible personal property and payment for performing enumerated services sold. Major exemptions from this tax include food for home consumption, prescription drugs and medical devices, motor fuel and motor vehicles (subject to a special excise/use tax which is deposited in the Road Use Tax Fund). Also, machinery and equipment used in processing, personal property used in agricultural production, and farm machinery and equipment are exempt from this tax. A rate of 6 percent is imposed on taxable transactions. One sixth-of this amount is transferred from the General Fund to the Secure an Advanced Vision for Education (SAVE) Fund for distribution to local school districts for school infrastructure projects.
  • Corporate Income Tax. This tax was enacted in 1934 and imposed on Iowa net income earned by the corporations in Iowa (single sales factor). Iowa has a progressive tax structure with rates ranging from 6 to 12 percent. These percentages are brought down as corporations are allowed to deduct one-half of their federal taxes (federal deductibility). Starting with tax year 2021, federal deductibility is eliminated and tax rates are reduced to a range of 5.5 to 9.8 percent.

So, for FY 2021, the General Fund will appropriate over $8 billion! Breaking that number down looks like this:

  • Education $4.4 billion
  • Health & Human Services $2.22 billion
  • Justice & Judicial $723 million
  • Property Tax Replacement & Tax Credits $484 million
  • Other $261 million

The first four numbers compromise 97% of the state budget and the “other” category comes in at 3%. In other words, the 3% is spread out pretty thin considering it includes Agriculture and Natural Resources. I guess it would have been easier to answer the two questions this way; The State gets its money from the people and the Governor and Legislature spend it.

You may reach me at the Capitol during the week by phoning me at 515-281-3221, or home at 712-434-5880. You may write me at the State Capitol, Des Moines, Iowa 50319.  My home address is P. O. Box 398, Aurelia, Iowa 51005. If you have email, please contact me at [email protected].

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