Iowa's New Conservatives
And why deficit spending is suddenly OK.
The Republicans who run the Iowa Legislature recently adjourned, passing a budget for the 2025-26 fiscal year that will keep the wheels of state turning for another year. That’s a good thing. The bad news is this: The state’s budget spends about $1 for every 90 cents it will raise in revenues.
In the old days, we would call this deficit spending, and Iowa’s traditional conservatives would be screaming bloody murder. But not Iowa’s New Conservatives. The pros who now lead state government not only say there is nothing wrong with withdrawing more than $900 million from surplus accounts to keep the state running. They say it’s all part of the plan.
On Iowa Press recently, Speaker Pat Grassley said the state’s surpluses will cover the shortfall, and that taxpayers had “overpaid” state government. This is simply giving them their money back, he said.
Which is convenient spin, but it’s not really true.
This deficit does not stem from an over-collection of taxes. It was caused by an overhaul in the state’s revenue collection philosophy.
Republicans in Iowa came to believe the state’s income tax, which has historically extracted more money from high-income earners, was not fair so they changed that, and now they are shifting the revenue burden to the sales tax, which digs deeper into the pockets of low-and middle-income families. (This is why it’s called a regressive tax.)
In 2026, sales and use taxes will raise almost as much in total tax receipts as the income tax, according to the state’s Revenue Estimating Conference, and it will substantially narrow the gap between the share of total receipts coming from these very different types of tax.
I’ve explained this before. This is not, as Republicans are now claiming, a situation that came about because the state collected too much tax money. Republicans purposely hoarded resources, spending as little as 82% of revenues in some years, according to Common Good Iowa, just so they could overhaul how much tax money they raise—and who they raise it from.
Republicans could have backed off on the sales tax, which for most places in Iowa is at 7%. That would have helped low- and moderate-income Iowans. But they chose not to do that.
In fact, lawmakers expanded sales tax collections in 2019 to raise hundreds of millions of dollars more.
Some might argue it made sense to levy a sales tax on online goods. There are certainly arguments in favor of it. But it was done as Republican lawmakers were also approving a flat income tax that gave the average Iowa millionaire $67,000 and the typical Iowa household $600. Republicans also lowered corporate income taxes. And in 2024, they were so pleased with themselves they sped up implementation of the income tax plan.
Iowa’s New Conservatives call this “pro-growth economics.”
Others might call it shifting the burden away from the wealthy and on to the rest of us.
This isn’t a one-time deficit, either. Iowa now is now on track to deficit spend over five years, according to emails from the Reynolds administration.
Republicans insist there is enough in the reserve accounts to smooth out the imbalances. But we all know financial projections can change. Who’s to say we won’t have to dip into savings for more than five years?
What’s more, this is also is an extraordinary shift in philosophy.
As long as I’ve lived in this state, Republicans have said that we need to run Iowa like a business. But what business raids its savings accounts for five years running just to keep the factory lights on?
I suppose if this was part of a plan for long-term upgrades that would benefit the enterprise as a whole, that would be one thing. But does anybody expect Iowa to be substantively different in five years than it is today? It might even be worse, given the government’s ineffective responses to childcare and workforce shortages and water quality issues.
Iowa’s New Conservatives also believe that raiding rainy-day funds is only bad management when it’s raining. Remember when former Gov. Terry Branstad criticized Chet Culver, his predecessor, for using one-time money to keep the state operating when it was struggling to get out of the worst national recession in nearly a century.
Iowa’s New Conservatives now think the time to use their spare cash is before it starts raining. Apparently, this way when the economy turns south, they won’t have enough money to meet the state’s obligations. Which is a great way to fall behind the rest of the country in teacher pay as well as hamstring Iowa’s ability to absorb the additional health care and food assistance costs the federal government plans to push on to the states.
Republicans under the Golden Dome don’t seem to be worried about an economic downturn, however. They apparently have undying faith in Donald Trump. This, too, is Iowa’s New Conservatism.
It’s true that Moody’s just downgraded the US credit rating, household debt is at an all-time high, and treasury yields have been flitting past 5% every time the market detects a shift in Trump’s mood. Then there’s the Iowa economy, which is one of the worst-performing in the nation.
Of course, on the bright side, JP Morgan just said the nation’s chances of a recession are now at only 40%, which is down from 60% a month ago.
I’m not comforted by any of this. But the pros in Des Moines say they aren’t bothered. They tell us this is all part of the plan.
“This is what responsible, growth-oriented fiscal stewardship looks like,” Gov. Kim Reynolds said in March.
I think Iowa’s real conservatives might disagree.
Either way, this plan undoubtedly alters who pays for Iowa’s state government. It also carries some risk for the politicians who designed this plan. At least it will for those who intend to hang around. Which won’t include Reynolds. In April, she announced she won’t run for re-election.
Correction: My May 27 post erroneously suggested Joni Ernst was in the US Senate in 2011. That reference has been removed.
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Thanks for writing about the regressive nature of sales taxes. Too many leaders talk about how the sales tax is fair, not asking about the disproportionate hit on disposable income paid by working class Iowans
And thanks for reminding Iowans on how Iowa ranks.
I am glad for your writing. I would hope elected officials and candidates talk about the deficit spending, the unfair sales tax, and how the wealthy in Iowa make out like bandits with income tax changes.
"There are leaders who seem to worship the rich as though they are more worthy of privilege, more deserving of forgiveness, more justified in their mistakes than ordinary Americans.
These leaders are completely disconnected from the truth of the lives of most Americans, and they hold to these misconceptions regardless of the facts. I do not know how they can ignore rising poverty, extended unemployment, food lines beginning to emerge in some states, whole families living in cars and panel trucks, and seniors choosing between medication and food.
I am not sure what kind of blindness sets in, but there is a grand denial based on the belief of the separateness of human experience that is unwilling to conform to the truth." - John Lewis, 2012