Iowa’s Taxpayer Relief Fund

While most states have rainy day funds, Iowa alone maintains a Taxpayer Relief Fund, which collects excess revenue for the express purpose of providing ongoing tax relief. Originally enacted as the Taxpayer Trust Fund in 2011, the Fund was reformed in 2018, lifting its initial $60 million cap and expanding how lawmakers can utilize the funds.  

Wisconsin has a similar but narrower law, enacted by Governor Scott Walker (R) in 2013 that puts all revenue collected from online sales tax into a fund used to pay for income tax rate reduction. The recent online sales tax instituted in 2019 triggered the provision and subsequently cut individual income tax rates. As it stands, Iowa’s Taxpayer Relief Fund is the first and only of its kind to save and allocate overall excess collections exclusively for tax relief. 

Collections flow into the Fund only after state tax collections exceed projections from the Revenue Estimating Conference and the Cash Reserve Fund and Economic Emergency Fund have both been accounted for. In its original state, the excess revenue was refunded to the taxpayer through tax credits in the following year. Now, lawmakers have an expanded authority to enact broad tax relief with those funds in whichever way they see fit. 

By the end of 2021, the Fund surpassed $1 billion and will likely continue to grow as the Hawkeye State expects another hefty surplus from the recent fiscal year. These funds have allowed the state to pass historic tax relief lowering and flattening the individual income tax, providing relief for retirees, and overhauling the corporate tax system.  

Iowa’s Taxpayer Relief Fund is an innovative way for the state to keep the interests of the taxpayer at the forefront. It serves as a constant reminder that state revenues fundamentally belong to the taxpayer, not the state. As governors and lawmakers in other states seek to provide tax relief in a responsible manner, the Iowa Taxpayer Relief Fund has provided a model for how to ensure excess collections are put back in the hands of taxpayers. States across the union would do well to follow Iowa’s lead and enact their own funds to facilitate ongoing tax relief and reform.