As conversations about budgets and tax cuts are now moving to the forefront of the legislative session, it is once again time to review an important factor in these discussion – the Taxpayer Relief Fund.
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. In order 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 actually 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. House Republicans felt it was important that excess revenue be returned to the taxpayers. Through intense negotiations, both Senate Democrats (the majority party then) and Governor Branstad were persuaded to commit to this. Thus, the Taxpayer Trust Fund was born. The maximum amount that could be deposited per year under that agreement 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.
With the change of control in the Iowa Senate, the importance of the Taxpayer Trust Fund was significantly increased. As part of the 2018 state tax reform law, the name of the 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 2023. When the Legislature passed the FY 23 budget at the end of the 2022 session, the revenue forecast called for the state to collect $9.1346 billion in tax revenue. When the books were closed on Fiscal Year 2023 in September, actual state revenue amounted to $9.8453 billion. The difference between the two figures is the amount deposited into the Taxpayer Relief Fund.
Thanks to several consecutive years of record tax collections and another strong year this year, the Taxpayer Relief Fund now has $3.6772 billion in its account. That is a symbol of the strong fiscal leadership that House Republicans has provided the state since 2011.
