A lesson from Iowa on government reform: It's not just the taxes — it's the spending

Former President Herbert Hoover argued that governments have the instincts of a vegetable — that is, “they keep spreading and growing.” Iowa Gov. Kim Reynolds (R) echoed Hoover when she stated that “like any large organization, government is marked by bureaucracy’s natural tendency to grow. If that growth isn’t constantly checked and rechanneled toward its core function, it quickly takes on a life of its own.”

This is why Reynolds has made reform of government a priority during her time in office. Fiscal conservatism is not just pro-growth tax reform, but even more importantly it must include limiting spending and reducing the size of government.

Fiscal policy has been a significant part of Reynolds's agenda: “We reduced taxes—saving Iowans more than $24 billion over 10 years. No more tax on retirement income. No inheritance tax. And starting this month [January 2025], Iowans get to keep even more of the money they earn, with a 3.8 percent flat tax — a far cry from the 8.98 percent of six years ago,” said Reynolds. Iowa’s corporate tax rate, once the highest in the nation at 12 percent, has been reduced to 7.1 percent and will continue to decrease until it reaches a flat 5.5 percent.

Not only will Iowa have eliminated the progressive income tax, but it will also have reduced the top tax rate by almost 60 percent.

These reforms are grounded in common-sense budgeting ideas, which have prioritized spending control and government efficiency. These efforts have not only ensured budget stability with surpluses, full reserve accounts, and a Taxpayer Relief Fund with a $3.6 billion balance, but they have also enabled responsible tax reductions.

During her Condition of the State address, Reynolds launched Iowa’s DOGE task force, modeled after her efforts to reform state government. “I like to say that we were doing DOGE before DOGE was a thing…,” she said.

Prior to forming the DOGE taskforce, Reynolds was able to get two major state government reform laws passed.

“When we started our alignment work in 2022, state operations hadn’t been reviewed in forty years — and it showed," she said. "Layers of bureaucracy had accumulated over decades, expanding government beyond its core function, keeping us from working effectively as one team, and hampering our service to Iowans. We were too big, too fractured, and too inefficient.” 

Both government reform measures worked to limit government and make services more efficient. “We’ve transformed the way our State interacts with citizens, businesses, and entrepreneurs,” Reynolds said. “We consolidated agencies (from 37 to 16), eliminated 1,200 burdensome regulations, remade legacy systems, centralized programs, and leveraged technology.” These reforms have already saved taxpayers $217 million, exceeding original projections just within the first 18 months.

Prior to the reform, Iowa had 256 boards and commissions. Eighty-three of them have now been eliminated and others consolidated. In starting this reform, Reynolds asked basic questions that all policymakers should be asking about government — local, state, and federal.

“What is the core mission of each agency? How is it funded? How is it staffed and what does it own? Are the agency’s programs working? How did the structure of the agency compare to other states? Where is there duplication or misalignment? What can we cut?” These questions align with the principles of priority-based budgeting, as outlined in the ALEC State Budget Reform Toolkit.

Finally, Reynolds understands that conservative budgeting is at the heart of tax reform. “But it’s not enough just to cut taxes," she says. "You have to make them sustainable, especially if you want to keep bringing them down. The growth they create helps, but you also have to keep spending in check.” This is a lesson that many states and the federal government have yet to learn.

Going into the 2026 legislative session, Reynolds is making property tax reform a priority. Across the nation, reforming property taxes appears to be the most difficult tax reform endeavor. Nevertheless, she understands that local governments must apply the same fiscal conservatism as well as undertake government reform measures in order to provide property tax relief.

With the laudable goal of tax relief, spending must be addressed through priority-based budgeting. Regardless of the tax, it is government spending that drives high taxation.

John Hendrickson serves as Policy Director for Iowans for Tax Relief Foundation and Jonathan Williams is President and Chief Economist of the American Legislative Exchange Council