By: Linh Ta
01-14-2025
While Iowa GOP lawmakers are likely against legalizing cannabis this session, a former state official expects they'll soon "need a new sin tax" to make up for lost revenue from tax cuts, reports Iowa Capital Dispatch.
Why it matters: State forecasters project Iowa's revenue to decline by around $1 billion over two years because of major tax cuts signed into law by Gov. Kim Reynolds, who also says she wants to eliminate the state income tax by 2027.
While Republicans say they expected revenues to go down and still have a nearly $2 billion surplus to work with, Democrats are warning that this year's expansion of a private school "voucher" program will compound the losses, IPR reported in December.
Driving the news: State estimates show a 5.3% drop in revenue for fiscal year 2025 and a 6.3% drop in fiscal year 2026.
Mike Tramontina, the former director of the Iowa Department of Management, which oversees state budgeting, predicts Republicans will avoid raising income or sales taxes during a financial shortfall, due to political objections, and instead turn to cannabis legalization.
He estimates the state will need $40 million to $50 million in new revenue and the current medical marijuana program won't cover that. Cigarette and alcohol sales taxes are already "quite high," he tells ICD.
Zoom out: Neighboring states — including Illinois, Minnesota and Missouri — are reaping fiscal benefits from Iowans crossing state lines to purchase recreational cannabis.
Missouri, which legalized recreational cannabis in February 2023, garnered $65 million in tax revenues from its first year of sales. Illinois estimated it generated about $3.6 million in tax revenue from Wisconsin residents alone in 2022, about 7.8% of all its cannabis revenues.
A cannabis dispensary in Eagleville, Missouri, regularly advertises in Iowa and has customers who travel across state lines for products.
What they're saying: Rep. Ann Meyer (R-Fort Dodge) chairs the Health and Human Services Committee and is a key lawmaker for passing recreational cannabis legislation.
While Meyer tells ICD she opposes legalizing recreational use, she supports the state's medical program and is open to "revising" it if any changes are needed.
The big picture: The Trump administration appears to favor policies legalizing cannabis in the U.S., including rescheduling it at the federal level, NPR reported in November.
Trump legalized hemp in 2018.
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