How Iowa Should Offset the Gas Tax Increase

Last week the Iowa Senate and Iowa House passed, and Governor Branstad signed into law, a 10 cent increase in Iowa’s per gallon fuel tax. While for several reasons I voted against this action, the bill passed and is now law. Our focus moving forward should be on reducing your income tax.

The first day the new gas tax was in place was last Sunday, which means Iowa families are already feeling this increase in their weekly budgets. The cost of this will be different for everyone as it depends solely on the number of miles we drive.  On average, each Iowa driver will pay an additional $60-$100 a year. As someone who champions less taxation and more economic freedom, this reality increases my urgency to provide our citizens a way to get back the additional money they are now paying out at the pump.

I believe that the best way to offset these higher fuel costs and to spark economic growth is to reduce the state income tax rate. I have studied this issue for years and am absolutely convinced the benefits of reducing our income tax rate will spread to Iowans of every income level and lead to increased revenue.

Beyond these direct positives, it is critical for state leaders to view our tax policy in the “big picture”. Since each state in our nation sets their own unique tax structure and tax rates, Iowa is in direct competition with 49 other states for young people, economic activity, and jobs. In the long run, we will continue to have stagnant and shrinking population growth if we do not measure up in all three areas. In short, our key to victory is a 21st century economy driven by a lean and low-taxing state government.

I introduced a bill this session calling for a 10% across-the-board cut to Iowa’s state income tax immediately. This would provide over $380 million of tax relief to hard working taxpayers and easily offset the recent $215 million increase in the gas tax. The result would be a net tax decrease of over $165 million. As a side note, the income tax and gas tax are two different funding streams (income tax goes into the general fund and gas tax goes into the constitutionally protected road use tax fund).

I have a specific long-term vision for the future of Iowa and the economy we must create. At the core of this is a tax code that wins the competition with surrounding states by delivering an innovative, thriving and expanding state-wide economy. While ultimately our goal should be to follow other states and eliminate the income tax altogether, this 10% income tax cut is a decisive step toward future prosperity.

Though I am disappointed the fuel tax was raised last week, it has only increased my conviction that the time to rethink taxes is now.  In this era of technology, our state government must react with a new and modern approach driven by one simple reality—the economy of the future will not be built with the tax policy of the past.



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