Income, jobs, and government tax revenue are disappearing. Iowa's overall economy is looking at a total loss of $1.6 billion. Future state and local tax collections reduced $112 million.
The coronavirus is significantly reducing budgets for individuals, businesses, and all levels of government. While this is not surprising, estimates of the impact might be.
A TEF Iowa report authored by economists Dr. Ernie Goss and Scott Strain estimates a total loss of $1.6 billion for the overall Iowa economy from all stages of production, from March 21 through April 11.
- Loss of 243,237 direct and spillover jobs
- Loss of $557.8 million in wages and salaries
- Loss of $73.7 million in self-employment income
- A total loss of $1.6 billion for the overall Iowa economy
Strain estimates, "If this impact were to continue for a 12-month period, you're looking at about nine to ten percent of the gross domestic product for the State of Iowa lost."
Reduced government tax revenue
After Iowa's economy was paused for just three-weeks, state and local tax collections are estimated to take a sizeable reduction in the future as well:
- $37.2 million in sales taxes
- $26.8 million in individual income taxes
- $3.1 million in corporate income taxes
- $36.6 million in property taxes
- $8.3 million in other taxes and fees
- A total reduction of $112.1 million in future state and local tax collections
State budget impact
Before coronavirus, the state's current fiscal year budget was projected to have a large surplus at the year-end of June 30. The need for cuts or tapping into reserves funds prior to June may be small. However, there won't be easy answers for the 2021 Fiscal Year budget whenever legislators return to the Capitol to resume the suspended legislative session.
Senate Majority Leader Jack Whitver said, "I would expect it's going to be a tight budget. Iowans are tightening their belts at home, businesses are tightening their belts. And I would expect state government to do the same."
When asked how governments could offset revenue decreases, Goss urged legislators to resist the temptation to raise taxes because they discourage economic activity.
What does economic recovery look like?
Dr. Goss said, "I initially thought this was going to be a v-shaped recovery meaning a sharp down and sharp up. Then I moved to a u-shaped sharp down, move along the bottom, then sharp up. Well, I've changed that to a Nike swoosh or checkmark meaning a sharp down and gradual increase."
Both economists are optimistic because workers didn't suddenly become less productive and the economy didn't have the types of imbalances typically seen in a recession. "We didn't suddenly lose all the human capital, all the skills that we've accumulated for years. We still have a productive labor force and need to just let them get back to work," Strain explained.
The complete report, including a recorded interview with Goss and Strain, can be accessed on TEF Iowa's website.
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