Iowa’s Taxpayer Relief Fund

By Rep. Jon Dunwell

It is a tale as old as time. Democrats and their friends in the media attacking Iowa Republicans during an election campaign for lowering income tax rates on working Iowans. As part of this sad tale, they always claim that cutting taxes will leave the state’s budget short on money in future years. Their story comes with an example of where similar actions went wrong – Kansas. But these chicken little claims always fail to include one big difference between what Iowa is doing and Kansas did – Iowa’s Taxpayer Relief Fund.

Just what is the Taxpayer Relief Fund? It is an account in the State Treasury that holds unanticipated state revenue to be returned to the taxpayers. For funds to be deposited in the Taxpayer Relief Fund, actual state revenue has to exceed what had been projected for state tax collections by the three-member Revenue Estimating Conference (REC). The difference between what was collected in tax revenue and what the REC had projected is deposited into the account once the fiscal year’s books have been closed.

When the Fund was created in 2011, the account was originally called the Taxpayer Trust Fund. The maximum amount that could be deposited per year was limited to no more than $60 million. If there were funds deposited into the account, they would be returned to taxpayers through a special income tax credit on Iowans’ state income tax return.

As part of the 2018 state tax reform law, the Taxpayer Trust Fund was changed to the Taxpayer Relief Fund. The limit on the amount of funds that could be deposited into the account was stripped from the law, as was the automatic return of the funds via the personal income tax credit. Instead, the Fund would be dedicated to tax relief which would be determined by the Legislature.

So how does the Taxpayer Relief Fund work? Let’s use the final numbers for Fiscal Year 2024. When the Legislature passed the FY 22 budget in May 2023, the revenue forecast called for the state to collect $9.6265 billion in tax revenue. When the books were closed on Fiscal Year 2024, actual state revenue amounted to $9.7558 billion. The difference between the two figures is $129.3 million, which is the amount deposited into the Taxpayer Relief Fund.

Thanks to strong, sustained revenue growth over the last five years, the Taxpayer Relief Fund has grown significantly. The Fund now holds $3.9422 billion in its account. Thanks to forward thinking and learning the lessons of Kansas, Iowa is in a solid financial position as implementation of the income tax reductions continues to phase in over the next few years.