Policy Recommendations
- Fiscal Reduce the government workforce and spend less on education (especially higher education), public buildings, hospitals, highways, parking lots, and sanitation—all areas where the state spends more than average—and use the savings to cut property, sales, income, and motor vehicle license taxes.
- Regulatory Reduce entry regulations by repealing certificate-of-need requirements for new medical facilities and adopting a robust and independent sunrise review requirement for new occupational licensing proposals. These reforms plus small reductions in the actual number of licensing restrictions would get Iowa into first place over Kansas on regulatory policy.
- Personal Adopt universal education savings accounts.
Analysis
Like other midwestern states, Iowa has long been a standout on regulatory freedom. Even though the state has moved right in recent years, it is one of just a few states whose fiscal situation has deteriorated during the past decade. As a result, its fiscal policy ranking has cratered. Not so long ago, Iowa was a top-10 state on overall freedom, but its competitive policy advantages have faded.
Both state and local tax burdens are above average in Iowa. Iowans pay 11.1 percent of adjusted personal income to government, similar to the figure in Massachusetts. The state tax burden rose from 5.7 percent in FY 2011 to 6.9 percent in FY 2022. Government GDP share is almost as high now as it was in 2000 (11.4 percent versus 11.5 percent). Most other states have brought this metric down. Debt is quite low, however. Government employment is about average: 13.4 percent of private employment in 2022, about where it was in 2000.
Iowa has consistently stood out as a leading state on regulatory policy. Land-use freedom is much better than average, although the state hasn’t done as much as some others about eminent domain for private gain, and like everywhere else, local zoning has become tighter. It is a right-to-work state without a minimum wage, and workers’ compensation-mandated coverage was liberalized slightly in 2008. Unlike most other states, Iowa doesn’t mandate standing referrals or direct access to specialists in health plans. In 2017, telecom wireline regulatory authority was fully removed, and the state has statewide video franchising as well. Occupational freedom is about average and has fallen over time because of the licensing of new occupations, especially between 2005 and 2009 and again in 2016. Iowa has a certificate-of-need law for hospital construction. Insurance freedom rose with a switch back to “use and file” in 2018. The civil liability system is rated well above average and has generally improved.
On the personal freedom side, incarceration and victimless crime arrest rates are somewhat better (lower) than average. In 2018, Iowa stopped suspending driver’s licenses for drug offenses unrelated to driving. Educational freedom is somewhat high because the state has a long-standing tax-credit scholarship program, as well as interdistrict public school choice. Homeschooling was significantly liberalized in 2013. In 2023, the state adopted universal school choice. However, private schools are tightly regulated, with mandatory state approval, teacher licensure, and detailed curriculum control. Gambling freedom is high, and the state legalized online sports betting in 2019. Marijuana freedom is sharply limited; a single marijuana offense not involving minors can carry up to 50 years of prison time. Since the 1980s, Iowa has improved greatly on gun freedoms. Constitutional carry was adopted and owner licensing restrictions were removed in 2021. However, machine guns are still illegal, there’s a stricter-than-federal minimum age to purchase firearms, and local private-sales background check are required. Alcohol freedom is mediocre because of state involvement in wholesaling and high taxes on distilled spirits.