The sales tax landscape

The state of Iowa may be inching closer to funding the trust fund created six years ago to benefit the outdoors, including water quality.

The Natural Resources and Recreation Trust Fund was adopted in 2010 by the legislature and signed into law by Gov. Branstad. But it received no funding at that time, and has had none since.

Its intended funding mechanism awaits the enactment of a sales tax increase in Iowa.

The law stipulates that if and when the state boosts its sales tax rate, the first three-eighths of a cent of the new tax will go into the outdoor trust fund. Those moneys are protected by the provision in the law that inserted the requirement into the Iowa Constitution, so that they can’t be skimmed for other purposes by the legislature or the governor.

Three-eighths of a cent of sales tax in Iowa would raise an estimated $180 million a year.

Branstad, speaking in Cedar Rapids two weeks ago, said there is no stomach in either house of the legislature now to raise the sales tax rate.

He’s probably right.

After the 10-cent Iowa fuel tax increase enacted last year with barely enough support in the legislature, lawmakers are understandably reluctant to walk through the fire of another tax increase battle.

On the other hand ...

A powerful coalition of organizations has been lobbying for the trust fund for the past several years, and is gaining traction. As water quality comes under higher and higher scrutiny in the state, the powerful agricultural organizations that traditionally oppose tax increases are feeling the pressure.

As an example, the Iowa Farm Bureau Federation recently stated its support of finding additional funds to improve water quality in the state. Previously the group had advocated transferring money from some existing pot of state funds for that purpose.

The governor, although not yet on board with a sales tax increase, has shown his willingness to consider various other options to feed the empty trust fund. His initial proposal — to shift money starting in 2029 from a school infrastructure fund — did not gain traction in the legislature, and he appears now to be floating other ideas.

More pressure to fund the new trust fund will come from Engage Iowa, a conservative think tank created last year by Cedar Rapids Mayor Ron Corbett. Corbett, a former legislative leader, is seen by many political observers as a likely candidate for the Republican nomination for governor in 2018.

Corbett and Engage Iowa endorse a one-cent sales tax increase, a position not usually supported by conservatives.

But Corbett has two purposes for the increase. In addition to funding the outdoor trust fund, with its three-eighths of a cent for water quality and other outdoor improvements, he wants to use the remaining five-eighths of a cent from the penny increase to reduce state income taxes, to the tune of about $300 million a year.

That plan puts Engage Iowa, and Corbett, squarely in traditional conservative mode.

Cutting income taxes is a hallmark of conservative philosophy. (The Iowa Republican Party platform this year calls for the abolition of the 16th Amendment to the U.S. Constitution, adopted in 1913, which allows the federal government to collect income taxes.)

Corbett’s proposal will face an uphill fight in the Iowa legislature, particularly if the Iowa Senate remains under Democratic control. Most Democrats contend that shifting the tax burden from income to sales taxes weighs on people of low and moderate means, while giving a break to the more well-to-do. Add in the general reluctance to increase any tax, and the odds against the proposal are evident.

But if environmentalists decide to throw their support to Corbett’s Engage Iowa plan, in order to snare $180 million a year for the Natural Resources and Recreation Trust Fund, the outcome just might be different.

And there are lots and lots of groups that might see hope for higher appropriations for their own causes if there were $300 million a year there for the taking, instead of using it to cut the state income tax rates.

It could take years — and a change in the governorship — for anything like that to happen. But major changes in state law usually take place after they’ve simmered for a long time.

It will be instructive to watch how all the components clash and/or mesh in the next few years.