Major Victory for School Choice in Iowa

Since I’ve repeatedly written (and spoken) about the momentum for school choice, I’m naturally a big fan of this video from John Stossel.

It’s not just libertarian-oriented people who recognize that school choice is gaining ground across the country.

The union bosses at the National Education Association have bitterly complained that their under-performing monopoly is being threatened as parents get more options.

Given the malignant role of teacher unions (especially with regards to disadvantaged students), that definitely warms my heart.

Now we have more good news to share – assuming you are a good person who puts the interests of kids above those of union bosses (unlike someone who happens to reside at 1600 Pennsylvania Avenue).

After getting comprehensive statewide school choice in West Virginia in 2021 and Arizona in 2022, the Hawkeye State has now enacted its own version.

Here are some of the details of this remarkable development from Iowa, as reported by Jeremiah Poff for the Washington Examiner.

Gov. Kim Reynolds (R-IA) signed new legislation Tuesday…to establish a universal school choice program. Hours after the state legislature approved the Students First Act to establish a statewide education savings account program for all K-12 students , Reynolds, surrounded by children, triumphantly affixed her signature to the legislation… The new program will provide students with more than $7,000 in annual funds through an education savings account that can be used to cover all sorts of education-related expenses, including private school tuition and private tutoring. …Reynolds said in a statement after the legislature approved the bill. “Parents, not the government, can now choose the education setting best suited to their child regardless of their income or zip code. With this bill, Iowa has affirmed that educational freedom belongs to all, not just those who can afford it.”

This is good news. It means better results for students at lower cost for taxpayers.

By the way, here’s another excerpt that is worth sharing.

The Governor not only is a supporter of school choice, she took the very unusual step of going after Republican state legislators who were siding with union bosses rather than families.

Reynolds, a Republican, had sought to enact a school choice program in the state’s previous legislative session but encountered opposition from members of her own party that doomed the bill. She later took the unusual step of endorsing primary opponents for several of her party’s own incumbents who opposed school choice.

She didn’t just endorse primary opponents.

Many of those candidates actually defeated incumbent Republicans who opposed choice.

And that’s been happening in other states as well, which arguably can be considered the best political news of 2022.

I’ll close with an upbeat prediction that Iowa won’t be the only state to adopt comprehensive school choice this year. So I fully expect big, positive changes in next year’s version of this map.

And I’ll also predict the list of school choice hypocrites will expand.

P.S. Depending on how you rank the importance of different issues, what’s been happening with school choice may be only the second-most important development at the state level in recent years.

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America’s Best and Worst Governors

What’s the reward for a governor who replaces a discriminatory and punitive system with a simple and fair flat tax, particularly in a year when many other states also are enacting better tax policy?

The reward for Kim Reynolds of Iowa is the top score in the Fiscal Policy Report Card on America’s Governors 2022, authored by Chris Edwards.

But it’s not just pro-growth tax reform. Iowa’s governor also scored highly because “Iowa general fund spending has risen at just a 2.3 percent annual average rate under Reynolds.”

Chris Sununu of New Hampshire was in second place, followed by the governors of Nebraska, Idaho, and Arizona (which also enacted sweeping tax reform).

And what’s the penalty for being a tax-hiking big spender?

Well, if “general fund spending expanded at an annual average rate of 6.3 percent between 2013 and 2022” and you were governor during those years, then you deserve to be known as the worst of the worst.

Especially if you also pushed big tax increases and you routinely try to sabotage your state’s constitutional ban on income taxes.

So “congratulations” to Jay Inslee. The governor of Washington definitely deserves his F.

Gavin Newsom of California is the nation’s second-worst governor (hardly a surprise).

The governors of Oregon, New Jersey, Michigan, Illinois, Pennsylvania, and Minnesota also received failing grades (I am surprised anytime New Jersey and Illinois avoid last place).

For those interested, here are the rest of the governors. Roy Cooper of North Carolina is the highest-scoring Democrat, followed by Michelle Lujan Grisham of New Mexco.

Bill Lee of Tennessee is the lowest-scoring Republican. Other Republicans with bad grades include the governors of Vermont, Alabama, and Missouri.

For those who follow high-profile officials, Governors Ron DeSantis, Kristi Noem, and Greg Abbott all received unremarkable C grades.

P.S. At the risk of stating the obvious, fiscal policy is not the only thing that matters. Readers who want to assess the overall level of economic liberty in different states should peruse Economic Freedom of North America and Freedom in the 50 States.

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Tax Policy, Tax Reform, and State Competitiveness

I wrote two months ago about Iowa lawmakers voting for a simple and fair flat tax.

I explained how this reform would make the state more competitive, but I want to build upon that argument with some of the Tax Foundation’s data.

Starting with this map from the State Business Tax Climate Index, which shows Iowa in 38th place for individual income taxes.

That low ranking is where the state’s tax code was as of July 1, 2021, so it obviously doesn’t reflect the reforms enacted earlier this year.

So where will the state rank with the new flat tax?

The Tax Foundation crunched the data and shows the state will jump to #15 in the rankings.

The above table shows that the jump is even more impressive when you factor in some modest pro-growth changes that took place a few years ago.

What a huge improvement over just a few years. The only state that may beat Iowa for fastest and biggest increase in tax competitiveness is North Carolina, which jumped 30 spots in just one year.

P.S. Politicians in New York must be upset that there’s no way for them to drop lower than #50. But at least they can take comfort in the fact that they are worse than California.

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Iowa Joins the Flat Tax Club

At the state level, we have another victory for good tax policy.

I wrote last month that Iowa might replace its discriminatory tax regime with a simple and fair flat tax.

And I pointed out that this reform would help the state jump several spots in my ranking of state tax systems.

Well, the proposed reform has been approved by the state legislature and Iowa will now have a much better (i.e., less destructive) tax system.

Here are some details of the new law, as reported by Stephen Gruber-Miller and Ian Richardson for the Des Moines Register.

Iowa will move to a 3.9% flat income tax rate under a compromise between legislative Republicans and Gov. Kim Reynolds… …It would also exempt retirement income such as 401(k)s, pensions and IRAs from state taxes… Along the way, the bill would eliminate Iowa’s progressive income tax system, where wealthier Iowans pay higher rates than lower-income Iowans. Iowa would join 10 other states with some form of flat income tax. …The new proposal would build upon a series of tax cuts that were previously set to start for Iowans in 2023, meaning multiple new tax laws would take effect during the same year. Iowa is already set to reduce the number of tax brackets from nine to four starting in 2023. …It will drop the corporate tax rate to a 5.5% flat rate over time.

I could end today’s column at this point.

After all, what happened in Iowa is a triumph for tax reform and another case study on the benefits of tax competition (just like we’ve seen in states such as Kentucky and North Carolina).

But I want to take this opportunity to address another big-picture issue.

Earlier this month, James Lynch wrote a column for the Des Moines Register on the potential impact of tax reform in the state.

He contrasted the views of both proponents and opponents.

Flattening state income tax rates and exempting retirement income would either lead to growth in businesses and jobs and increase Iowans wealth, or simply make wealthy Iowans wealthier, according to speakers at a public hearing…speakers at the Monday evening public hearing were divided between those who said a flatter tax rate would make Iowa a more attractive place for businesses to locate and expand — as well as a more attractive place for employees to live and work — and those who said the plan largely benefits the wealthy while doing little to help lower-income workers.

At the risk of sounding mushy, both supporters and critics are right.

Iowa’s tax reform will encourage more growth. And it’s also true that the rich will benefit.

But opponents are guilty of a sin of omission. That’s because tax reform will benefit lower-income and middle-class taxpayers as well.

And I think “sin of omission” is the right term. That’s because a big moral shortcoming among our friends on the left is that they are sometimes tempted to go along with policies that will hurt the less fortunate so long as they impose even greater damage on upper-income taxpayers.

P.S. Adopting a flat tax is progress, but the ultimate goal should be abolishing the state income tax.

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Iowa Adopting a Flat Tax?

I wrote last year about an encouraging trend of lower tax rates at the state level.

As you can see from this map, one of the states moving in the right direction is Iowa.

But Governor Kim Reynolds isn’t satisfied with just lowering tax rates, which is a worthy goal, of course.

She is now proposing to get rid of the state’s so-called progressive tax and replace it with a flat tax.

This would be very good news for Iowa’s economy and Iowa’s taxpayers.

An article in the Quad-City Times explains Governor Reynolds’ proposal.

In four years, every Iowan’s income would be taxed at 4% by the state under a new proposal from Gov. Kim Reynolds. Reynolds introduced her flat income tax proposal during last week’s annual Condition of the State address to the Iowa Legislature, encouraging the lawmakers to pass her idea.“Flat and fair,” Reynolds proclaimed during the speech. …Ten states currently have a flat state income tax, including Iowa’s eastern neighbor, Illinois. The list includes more blue states like Michigan and Massachusetts, but also red states like Kentucky and Utah. …Under Reynolds’ new plan, top state income tax rate would be eliminated each year over the next four years, until in 2026 every Iowa worker, regardless of income level, pays 4 percent. …The plan would reduce state revenue by $226 million in the first year, and by $1.6 billion at full implementation… Reynolds said during her speech. “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. We’ll see it spent in businesses instead of on bureaucracies.” …Republican legislative leaders praised Reynolds’ proposal and said they are eager to begin working on legislation.

The article also explains the previous tax reform, which focused on lowering marginal tax rates.

In 2021, Iowa had nine state income tax rates, tied for the second-most in the country. Most Iowa workers’ income was taxed at between 4.14%, with rates increasing as income increased, up to a top rate of 8.53% for those earning over $78,435 of taxable income. As a result of tax reform passed by the Iowa Legislature and signed into law by Reynolds in 2018, the number of tax brackets will be reduced to four, ranging between 4.4 and 6.5%.

I showed last year how that legislation moved Iowa up one level in a ranking of state income taxes.

Well, here’s an updated look at the state’s total improvement if the governor’s plan for a flat tax is enacted.

Iowa jumps from the worst column to the next-to-best column.

And if I ranked states by the rate of their flat tax, Iowa’s 4 percent rate would be lower than the rates in North Carolina, Kentucky, Illinois, Michigan, Utah, and Massachusetts.

Not as good as the states with no income taxes, but still impressive.

P.S. I’ll be curious to see how much Iowa will improve in the Tax Foundation’s rankings if the proposed flat tax gets approved.

 

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