Iowa's middle-class tax increase
How regular families are now subsidizing the Iowa GOP's tax cut for the rich
Iowa Gov. Kim Reynolds just signed into law a tax increase on private health insurance providers, and by all indications, regular Iowans will share some of the burden.
From my perspective, there are two things to remember about this:
1. It was the right thing to do.
2. It should never have come to this.
Republicans in the Iowa Legislature pushed this tax increase. The money, they said, is needed to cover a shortfall in the Medicaid program, which serves poor, elderly and disabled Iowans.
The insurance companies that were assessed the tax increase vehemently objected. They said it could cause premiums on Iowa families to rise by hundreds of dollars. Indeed, a Wellmark lobbyist said at a hearing a family of four on an HMO plan could experience an increased cost of $500.
This will not be welcome news. Already, tens of thousands of Iowans were hammered with higher health insurance costs this year because congressional Republicans refused to renew the enhanced Obamacare tax credits.
Still, I think this was the right thing to do.
I don’t like tax increases. Most Iowans don’t. I am part of an HMO, and I surely will take a hit on this. Still, Medicaid covers many of Iowa’s most vulnerable residents, some of whom I know and care about. If these taxes can limit at least a portion of the impact on them, then I’m willing to pay more.
Some Iowans won’t agree with my perspective, and I understand. Times are tough. Who needs a tax increase, right?
The thing is: It never should have come to this. This tax increase is a consequence of the choice Republicans in the state Legislature made a few years ago to cut income taxes on the rich in this state—to pass into state law a flat, 3.9% tax—later lowered to 3.8%.
Oh, they don’t describe their flat tax this way. But that’s the reality. For 2026, tax revenues paid by Iowa filers with more than $1 million in taxable income will be reduced by more than $214 million because of the flat tax, according to a Department of Revenue analysis a few years back.
Iowa filers whose taxable incomes ranged between $500,000 and $1 million were to save $107 million.
That’s $321 million total. The Gazette in Cedar Rapids reports the looming Medicaid deficit state lawmakers are now dealing with amounts to about $90 million for fiscal year 2026 and grows to $167 million in 2027. Do the math.
Iowans won’t cover the whole shortfall. This tax increase will leverage a big chunk of federal funds.
Still, this didn’t have to be.
Republicans didn’t have to give the average millionaire a $67,000 yearly tax cut. They could have concentrated their tax cuts on the typical non-millionaire Iowa family, which only got $600 from the flat tax. But they didn’t do that. They jettisoned a tax code that worked well for Iowa for decades and replaced it with a new system, driven by ideology, that’s now making the state more reliant on revenue sources that hit low- and middle-income families the hardest.
This includes sales and use taxes. And in this case, a temporary tax increase on insurance providers that, when passed along to Iowa families, will raise their household costs at a time when inflation and prices are already higher than they would like.
The Republicans’ choice also cratered state revenues, which leaves the Legislature with less ability to deal with problems like underfunded K-12 schools, Medicaid shortfalls. And rising college tuition costs.
A Des Moines Register editorial last weekend, citing a Board of Regents report, pointed out that 25 years ago, state appropriations made up 64% of revenues at the state’s universities, while 31% came from tuition. Today, this has flip-flopped. State appropriations now make up 28% of university revenues, and tuition accounts for 67%. That’s a ton of additional cost being heaped onto the shoulders of Iowa students and their families.
The Register says this shift in appropriations is a bipartisan phenomenon. Fair enough. But this doesn’t change the fact that lawmakers now have less room to maneuver because the Republican flat tax has syphoned hundreds of millions of dollars from state coffers. Much of it to the benefit of the wealthy.
This may be just the beginning, too. Medicaid faces a significant funding cut in the future because of the rich-families-first tax cut approved last year by Republicans in Congress and President Trump. Other state programs also will be affected as costs rise, as they always do. What kind of “temporary” tax increases will lawmakers rely on then?
Republicans who run state government in Iowa say the state can lean on surpluses, but those surpluses won’t last forever. Especially if state revenue forecasts fall short. In mid-March, the Revenue Estimating Conference said it expected fiscal year 2027 revenues to rise by 4.4%.
That’s a significant increase, and who knows whether it will hold. The war in Iran holds the potential to seriously weaken the world economy. Goldman Sachs says the probability of a US recession, while rising since the war began, still is fairly low. But even a small dent in the economy could affect Iowa revenue estimates. And even if these projections are met, Iowa’s operating deficit is still headed above $1 billion next year. Again.
The sad thing is I don’t know of a single Iowan—outside of those employed by millionaire-funded special interest groups—who thought the rich were paying too much in income taxes. But Republican lawmakers in Des Moines bought into this idea, which means we are now saddled with budget deficits, “temporary” tax hikes and less ability to pay for rising education costs.
On balance, I’m glad the Legislature approved this tax increase. Even if it means I’ll have to pay more for my health insurance. If this new money helps the state’s most vulnerable, then I’ll pony up. But let’s be clear: It didn’t have to be this way.
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Went through this in Texas in 1969. The State funded 78percent of State Universities operating costs. My degree cost me $1500. Low paying jobs were enough to cover Tuition and Books. My Father’s Engineering Degree from Ames was funded by the GI Bill. Mother, in her dying days told me she could not have afforded to send me where my Father attended. The Country was on a wave of prosperity due to the thousands of educated people who fueled that prosperity.
Texas now funds 18 percent of of a State University operating costs cost. This has made a wave of prosperity for the Banksters who reap the interest off of Student Loans. We buy our science and technology overseas.
A tax bill needs to be presented to tax payers as to what the money pays for. A Politician should be demonstrating what a great deal he is getting for his constituents by enumerating the benefits. Alas, the Public no longer has the time or comprehension for such a discussion. “Low-Good”. “High-Bad”. Chita wantem Sandwich! My how the savings have caused us to fall.
Readers are being asked to "do the math" in computing the adverse impact of iowa tax increases. This is unfortunate for younger readers who may not know how to compute said impact -- mute testimony to the declining quality of iowa's education system. Also to the lack of care shown by the iowa state legislature over the past decade.