Iowa is quickly becoming a beacon for economic growth and opportunity thanks in large part to Gov. Kim Reynolds. Her fiscally conservative policies have lowered tax rates, kept spending low, and reduced regulations.
Reynolds has received numerous honors for her fiscal prudence, including the Distinguished Service Award from the Tax Foundation and the Linda S. Weindruch award from the Iowa Taxpayers Association. She was also named a public official of the year by Governing magazine and recognized by the Cato Institute as the most fiscally conservative governor in the nation for the second year in a row.
All of these honors and recognitions center on the fiscal policies that Gov. Reynolds has implemented since 2018.
According to the Fraser Institute’s Economic Freedom of North America index, Iowa ranks as the 26th most economically free state in the nation. The Hawkeye state was ranked 32nd in 2016, just a year before Reynolds took office. Since that time, it has shown continuous improvement on this index and other similar rankings, largely as a result of the pro-growth and fiscally conservative policies that are being implemented.
Since 2018, Gov. Reynolds has placed a priority on tax reform. When Reynolds took office, the top income tax rate was 8.98%. Starting in January 2025, Iowa will have a 3.8% flat tax, which will be the sixth lowest income tax in the nation. Likewise, until the early 2020s, the top corporate tax rate in Iowa was 12%t. Iowa’s corporate rate is currently 7.1% and will continue to be lowered until it reaches a flat 5.5%.
Conservative budgeting is at the heart of Iowa’s pro-growth income tax reform success. This approach has strengthened the state’s fiscal foundation, while still allowing the state to meet spending priorities. In FY 2024, Iowa posted a budget surplus of $2.05 billion, projected to increase to $2.25 billion in FY 2025. Further, the Cash Reserve Fund and Economic Emergency Fund, Iowa’s primary reserve accounts, are filled to their statutory maximums, with a combined balance of nearly $962 million.
Iowa’s Taxpayer Relief Fund currently holds $3.7 billion, and $3.7 billion and is projected to grow to $4 billion by FY 2026. This fund’s growth ensures that tax cuts can be sustained, benefiting Iowa families and small businesses directly by putting money back into the economy.
The governor has further made reforming and reducing the size and scope of government a priority. According to Reynolds, “like any large organization, government is marked by bureaucracy’s natural tendency to grow. If that growth isn’t constantly checked and rechanneled toward its core function, it quickly takes on a life of its own.”
As a result, the legislature passed the first major effort to reform state government in nearly 40 years. The number of executive-level agencies has been reduced from 37 to 16. Numerous boards and commissions are also being reviewed and will either be eliminated or consolidated. The reform and realignment process are not only making government more efficient, but it is reducing the bureaucracy. In less than 18 months taxpayers saved about $130 million as a result of the reforms and additional savings are expected as the process continues.
Gov. Reynolds also spearheaded the process of reducing regulatory burden when she issued an executive order requiring a review of all regulations. Building on this, the legislature passed a regulatory reform measure, which requires a cost-benefit analysis of all new rules, and sunsets rules unless they undergo a substantive review and are re-approved by the legislature. In addition, occupational licensing reforms are reducing roadblocks for employment.
Iowa still has much work to be done to become more competitive. For one, the state has some of the highest property taxes in the country, which not only discourages economic growth, but also deters people and businesses from moving to or remaining in Iowa. Just as Gov. Reynolds and the legislature had to lower spending in order to lower income taxes, local governments in Iowa must do the same. Policymakers should consider a local government budget limit to force governments to limit their spending, which in turn would allow them to lower property taxes.
Iowa is confronted with unique challenges being a rural Midwestern state, but the foundation for a strong economy and a stable fiscal house resides in lowering tax rates, conservative budgeting, and reducing the regulatory burden. Iowa’s “Blue State” neighbors Minnesota and Illinois demonstrate that a state cannot tax and spend itself into prosperity.
Gov. Reynolds is setting the gold standard for state fiscal policy. Other states should take note.
