Condition of the State 2022: Reynolds proposes flat income tax, unemployment cuts

Emphasizing the importance of personal freedom and responsibility, Gov. Kim Reynolds used her annual Condition of the State address to propose a flat income tax, reduced unemployment benefits, and more transparency and choice for Iowa parents. 

“I’m proud to report, for the fourth time, in every corner of Iowa, the condition of our state is strong,” Reynolds said to a House chamber packed with lawmakers, journalists and guests, according to prepared remarks. “We’re strong because we’ve been guided by the lights of common sense, fairness, and freedom.”

Reynolds proposes flat 4% income tax

Following a round of tax cuts and a record-high state surplus, Republican leaders have called for additional tax cuts. Reynolds on Tuesday proposed a 4% flat income tax for Iowans, phased in over three years – “flat and fair,” she said.

“Despite the historic 2018 tax cuts, we’re still taking too much from Iowans’ paychecks,” she said. “That needs to stop, and it needs to stop now.”

The change would result in $500 million less collected in tax year 2023. When the flat tax is fully implemented in tax year 2026, Reynolds estimated the average Iowa family would pay $1,300 less per year in taxes. 

“Yes, we’ll have less to spend once a year at the Capitol, but we’ll see it spent every single day on Main Streets, in grocery stores, and at restaurants across Iowa,” Reynolds said. “We’ll see it spent in businesses instead of on bureaucracies.”

Reynolds did not commit to a complete elimination of the income tax, which others within her party have proposed. Senate President Jake Chapman said Monday that fully removing the income tax should be the goal in Iowa, though he acknowledged the process may take several years.

“Now is the time for action… We cannot allow another year to go by sitting on the sidelines while other states are aggressively reducing taxes,” Chapman, R-Adel, said.

Following the speech, Senate Majority Leader Jack Whitver told reporters that the flat income tax is “the next step we need to take to get to where we want to go.”

“We’ve said for years, our goal is to get to zero, and you don’t get to zero overnight,” Whitver, R-Ankeny, said.

Democrats objected to the flat income tax proposal after the speech. Rep. Jennifer Konfrst, House Minority Leader, told Iowa PBS that flat taxes unfairly benefit the highest-income Iowans.

“They’re going to get a much more significant cut… We think that the tax cuts need to focus solely on the middle class,” she said.

Reynolds also proposed an immediate repeal of state taxes on retirement income, and additional tax cuts for retired farmers.

Reynolds: Increase transparency so schools can’t ‘push their worldview’ on students

Reynolds thanked teachers for supporting students, especially when Iowa schools remained open during much of the pandemic. She noted that 56% of her proposed budget would go toward public education in Iowa, calling it “money well spent.” 

But Reynolds also spoke extensively about a movement of Iowa parents who have raised concerns in local school board meetings about what they consider inappropriate books in school libraries and classrooms. 

“There’s a difference between late-night cable TV and the school library,” she said. “If school boards and administrators refuse to understand that — if they believe the classroom is about pushing their worldview — then we’re on the wrong path.”

Reynolds proposed “full transparency” for parents to know what their children are learning in schools. Under her proposed bill, schools would be required to post a list of required readings and books available in their library.

If a parent files a concern, the school district would have 30 days to address that concern. Otherwise, it would go to the state board of education for consideration. Schools that do not comply would lose state funding, according to Reynolds’ staff.

“Parents should know what their kids have access to, and they should have a timely process to address their concerns,” Reynolds said. “Because when our parents are fully informed, they can make informed choices.”

Chapman was one of the first lawmakers to get involved in the issue of what he called “obscene” literature in schools, calling for criminal penalties for teachers who distributed inappropriate material. He gave a searing statement Monday, accusing teachers and the media of pushing a “sinister agenda” to “normalize sexually deviant behavior against our children.”

Senate Minority Leader Zach Wahls said Reynolds’s remarks were essentially an endorsement of Chapman’s speech.

“I thought it was a ringing endorsement of his remarks yesterday, and I thought it was a slap in the face to Iowa teachers,” Wahls, D-Coralville, said. He noted that the state already has a process for parents to object to materials in public schools, and he advocated for leaders to focus instead on staffing shortages.

Reynolds also took another swing at allowing parents to use some state funds to send their children to private schools, a component of her 2021 charter school proposal that didn’t pass with its initial bill.

In the new proposal, only a portion of the state per-pupil fund would go to the private school, while 30% of the funds would instead be reallocated to small public school districts.

“We want to ensure our small schools stay strong while, at the same time, empowering parents to choose what’s best for their child,” she said.

House Speaker Pat Grassley, R-New Hartford, said he would need to see the bill before weighing in on its chances in the House, where a similar proposal stalled in 2021.

“There was some concern with what it was going to do to rural school districts,” Grassley said, but he acknowledged this year’s approach was different and seemed to take those worries into account.

Whitver was optimistic from the Senate’s perspective.

“What we hear around the state is parents want more choice with their kids education, and we’re prepared to act on that from the Senate perspective,” Whitver said. “And I think there’s more momentum this year than there was even last year.”

Workforce: Ten fewer weeks of unemployment

Legislative leaders of both parties identified workforce shortages as one of the major issues to address this session. Reynolds touched on several proposals during her speech, including major changes to the state’s unemployment system. 

Under the current system, Iowans have 26 weeks – about six months – to collect unemployment while they search for a new job. Reynolds called that “more time than necessary” and proposed lowering the limit to 16 weeks.

“There is dignity in work; it gives us meaning and purpose,” she said. “So when it’s degraded, when idleness is rewarded with enhanced unemployment and stimulus checks, when work begins to seem optional rather than fundamental, then society begins to decay.”

Reynolds would also change the requirements for unemployed Iowans to accept a job, if offered one.

Democrats objected to the proposal.

“You can’t fix this workforce crisis by just hurting people who are trying to find a job on unemployment,” said Konfrst, D-Windsor Heights.

Iowa Workforce Development, the department that handles unemployment, this month increased the number of work searches a person on unemployment must do, and they introduced a one-on-one case manager system. Reynolds said IWD would create a new “re-employment” division, focused on connecting businesses with workers.

Reynolds also identified child care as a barrier to adults reentering the workforce. She announced the expansion of the Childcare Challenge grant program to create another 5,000 spots for pupils. 

Health care has experienced particularly drastic worker shortages, as the pandemic enters its third year. Reynolds proposed more loan forgiveness and apprenticeship programs for health care workers.