116 3rd St SE
Cedar Rapids, Iowa 52401
Home / News / Government & Politics / State Government
Iowa tax revenue expected to dip by 9 percent
Nonpartisan panel revises its estimate from March, but chairman maintains state ‘in a good spot’
Maya Marchel Hoff, Gazette-Lee Des Moines Bureau
Oct. 16, 2025 5:51 pm
The Gazette offers audio versions of articles using Instaread. Some words may be mispronounced.
DES MOINES — Iowa state tax revenue is estimated to fall by 9 percent during the current budget year compared to the last budget year, according to a nonpartisan state panel.
The panel said multiple factors contributed to the decline, including state and federal tax rate changes, dropping soybean prices and high unemployment rates.
During its meeting Thursday, the three-member Iowa Revenue Estimating Conference said the state’s general revenue estimate for the current budget year will decrease by 9 percent, a larger decrease than it predicted in its March estimate of around 5 percent.
The Iowa Legislature budgeted to spend $9.4 billion this fiscal year, while the REC estimates the state will bring in $8.1 billion. This means that the state will spend $1.3 billion more than it plans on bringing in, leading it to draw money out of state reserves to cover the revenue gap.
The conference consists of Department of Management Director Kraig Paulsen, Legislative Services Agency Fiscal Services Division Director Jennifer Acton and public member Jeff Plagge.
Paulsen, the REC chair, said the estimate does not come as a “surprise” and lawmakers budgeted for the fall in tax revenue. He pointed to the $6 billion in the Iowa Taxpayer Relief Fund that Iowa lawmakers planned to save to cover revenue gaps.
“I think we're in a good spot. I mean, it's hard to project when you start talking about four or five years from now, that gets challenging,” Paulsen told reporters after the meeting. “Is it the most comfortable spot? No, but we're in a really good spot, and it was planned for.”
Iowa Gov. Kim Reynolds said the REC’s estimate change from March is due to the passage of the GOP-backed federal “One Big, Beautiful Bill” enacted in July. Iowa has rolling conformity with the federal tax code, meaning the changes to tax calculations in the federal spending package, such as eliminating taxes on tips and overtime pay, will be reflected at the state level.
“Iowa is in strong financial position with a State General Fund ending balance of more than $1.88 billion, more than $4 billion in the Taxpayer Relief Fund, and full reserve funds. Now that Iowa’s 3.8% flat income tax is fully implemented, Iowans have more of their own money today than they did at this same time last year,” Reynolds said in a statement. “As a result, the state’s General Fund revenue is down just as we projected and responsibly planned for, and just as it should be. Government should only ask from its taxpayers what it needs to operate effectively on their behalf.”
Senate Majority Leader Mike Klimesh said that the state has been conservative with its spending, and “the budget is sound as the economy continues to change.”
“The news of the Revenue Estimating Conference today is not a surprise. It simply reaffirms the need to continue down the path of responsible, sustainable budgeting. There has been good news about the economy over the last few weeks,” Klimesh said in a statement. “Iowa’s GDP growth in the second quarter of this year was revised up thirty spots and was rated eighteenth in the country.”
REC member Acton said recent state income tax cuts, which resulted in Iowa workers paying the flat 3.8 percent state income tax in 2025, are a key reason why tax revenues are dipping. She added that while consumer spending is strong in Iowa, declines in overall consumer confidence could be “concerning.”
“Although the economic picture is mixed, state and federal tax changes are the primary factors driving this revenue estimate,” Acton said.
She added that state general fund revenues are expected to stabilize in 2027, as long as the state or country don’t experience an economic downturn.
State general fund revenue for the last fiscal year that ended June 30 was nearly $200 million less than projected by the REC, according to final numbers published by the nonpartisan Iowa Legislative Services Agency.
Unemployment rate, ag economy contribute to estimated revenue drop
Alongside federal and state tax changes, the REC cited other factors, including headwinds for the agriculture economy, trade disruptions from tariffs and unemployment as reasons for the estimated dip in state revenue.
Acton said hesitancy among manufacturing and finance employers, two of Iowa’s top industries, is leading to more jobs being left open due to soft sales and economic uncertainty.
Iowa’s unemployment rate sat at 3.8 percent in August, which was up from 3 percent in March. The national unemployment rate was at 4.3 percent in August.
China’s recent move to purchase soybeans from South American countries, including Argentina, instead of American growers, caused a “dramatic shift” in the global market and hit Midwest farmers, according to Acton.
“As harvest begins in Iowa, disruptions to global markets, variability of crop yield across the state and lower commodity prices are creating tough marketing decisions for farmers and increasing the strain on Iowa’s agriculture and manufacturing sectors,” Acton said.
Iowa House, Senate Democrats criticize Republican budget
Iowa legislative Democrats on Thursday criticized Republicans for the revenue gap, arguing that it was caused in part by corporate tax breaks and spending on Education Savings Accounts, which use public money to fund scholarships for students to attend private schools.
“Our Republican colleagues claimed they planned for it, but they didn't plan for this. Our economy is shrinking. Our revenues are collapsing. We are spending more than we're taking in,” Senate Minority Leader Janice Weiner of Iowa City said during a press call Thursday afternoon following the REC meeting. “Republicans have been in charge of all the levers of state government for nine years now, and now they own this.”
Democratic state Sen. Janet Petersen, who is the ranking member on the Iowa Senate Appropriations Committee, called the REC’s estimate a “historic drop.”
“The majority party's plan is to bleed our reserves dry to pay for their giveaways,” Petersen said on the press call. “The billion-dollar hole they created in the state budget is ongoing, but our reserve funds aren't. How long will Iowa taxpayers be asked to foot the bill for the majority party's economic mismanagement?”
Gazette Des Moines Bureau Chief Erin Murphy contributed to this report.