The libertarian Cato Institute think tank released its latest biennial Fiscal Policy Report Card on America’s Governors on Monday, giving Iowa Governor Kim Reynolds an A grade and the second highest rating among 47 governors scored on their commitment to conservative fiscal policy.
Reynolds promoted the news by tweeting a link to an article about it on the conservative news site Caffeinated Thoughts written by John Hendrickson, policy director for the Tax Education Foundation Iowa, another small-government think tank. “Good work, you don’t get near enough credit for this,” the site’s editor, Shane Vander Hart, replied to her tweet.
However, it’s not yet clear what the impacts of the massive tax cut Reynolds signed into law in May 2018 — the largest in state history — will ultimately be. “All in all, the cuts will initially save Iowans about $300 million a year and then rising amounts after that,” the latest Cato report card said. But critics (myself included) pointed to examples of similar tax initiatives led by other governors that ended in disaster, most notably with Sam Brownback in Kansas, who boasted that a five-year, $3.7 billion income tax cut he signed into law in 2012 would “be like a shot of adrenaline into the heart of the Kansas economy” only to see his state’s budget fall to shambles.
That hasn’t happened in Iowa, or at least it hasn’t yet. At the end of September, Reynolds announced that the state’s general fund had a surplus exceeding $300 million. The $2.2 billion tax cut she signed includes measures that Republicans claim will prevent what happened in Kansas from repeating here — namely, backstops they say will prevent future cuts laid out in the bill from being enacted if the state’s revenue is insufficient.
For now, the coronavirus pandemic has put some things on hold. The Cato report card approvingly notes that the governor proposed another round of cuts, to be offset by raising the retail sales tax rate, in January. “Unfortunately, the recession has shelved Reynolds’ latest tax reform plan for now, as Iowa policymakers have changed their focus to spending restraint and the health crisis,” it adds.
In 2012, Cato’s report card was even more bullish on Brownback, raving that he’d just “signed into law one of the most impressive tax reforms of any state in recent years.” Based on model legislation from the American Legislative Exchange Council, the new law simplified the state’s income tax system, the report card added, and included cuts “expected to save Kansas taxpayers about $800 million a year.”
That year, Brownback received an A grade of his own, topping the charts among the 48 governors scored (Cato excludes those who recently entered office, which is why it chose not to give Reynolds a grade in 2018). By comparison, then-Iowa Governor Terry Branstad came in 17th with a B. Cato applauded Branstad’s rhetoric on taxes and his reduction of state government jobs, adding hopefully that he “is older and wiser, and perhaps more frugal” than he was during the ’90s when he increased spending on multiple occasions.
Brownback came in second in 2014, receiving another A — one of only four Cato awarded that year, with another going to then-Indiana Governor Mike Pence, who’s debating Kamala Harris in tonight’s vice presidential debate. The report card said he “achieved a major policy success with income tax reforms” in 2012 and noted that he approved additional reforms the following year. Meanwhile, the failure of Brownback’s tax reforms was becoming more visible in Kansas, whose economy was underperforming neighboring states, without the promised added jobs but with significant cuts to important services like education and health care. This nearly cost him re-election, as dozens of prominent Republicans jumped ship to endorse his Democratic rival.
Cato summarizes its grading criteria simply: “Governors receiving an A are those who have cut taxes and spending the most, whereas governors receiving an F have raised taxes and spending the most.”
Both criteria earned the Kansas governor his high grades in 2012 and 2014. But Cato abruptly reversed course in 2016, giving him a D. “Brownback’s tax cuts have become controversial,” that year’s report card read. “The problem is that the governor and legislature did not fully match the reduced revenues with reduced spending, which created chronic budget gaps.”
The 2016 grade appeared to contradict some of the logic behind Brownback’s previous grades. In 2012, Cato ranked him first among governors despite offering mild criticism for a “substantial increase in the Kansas budget” that fiscal year, going on to commend him for eliminating the state’s parole board and (briefly) arts commission, among other reasons. “Politicians don’t often match tax cuts with spending restraint,” the 2014 report card said, “but Brownback has held the line on spending. The general fund budget has been roughly flat the past three years and state government employment has trended downward since Brownback took office.
“Some pundits are suggesting that the Kansas tax cuts are a failure because they have created large gaps in future state budgets. But the Kansas legislature released budget projections in May showing that even with current tax cuts in place, general fund revenue is projected to rise from $5.67 billion this year to $6.52 billion in 2019.” Even slower revenue growth, the 2014 report card added, “creates an opportunity for them [legislators] to improve government efficiency and cut unneeded programs.”
By early 2017, Brownback was one of the least popular governors in the country, facing a projected $1.1 billion budget deficit as he watched state lawmakers form a veto-proof bipartisan majority to undo his tax cuts. He left office in January 2018, when Trump tapped him to be his ambassador of religious freedom.
When I questioned the wisdom of Kim Reynolds’ tax cut two months later, I also described the failure of similar tax reforms by Bobby Jindal in Louisiana. Jindal implemented a series of cuts exceeding $1 billion, while slashing funding to services including education and healthcare, after becoming governor in 2008. In 2015, the year before he left office, Louisiana’s budget shortfall was projected to hit $1.6 billion by the following year. But Jindal was running for president and resisted proposals to raise taxes so that he could boast (not entirely honestly, in the end) to early-state voters that he never did as governor.
Jindal ranked second-highest among governors with an A grade on Cato’s 2010 report card, which said that his repeal of income tax hikes would save residents more than $350 million annually. He got a B in 2012 and again in 2014, when he landed one spot below Branstad on the list.
