In recent years, Iowa has seen dramatic improvements in tax competitiveness. According to the Tax Foundation’s Tax Competitiveness Index, the state’s tax policy improved enough between 2020 and 2025 to move from a rank of 43 to a rank of 17. Still, Iowa has one glaring hole in its tax policy: a high and burdensome property tax.
If the state wants to maintain a vibrant population, substantial property tax reform is necessary. Local spending is a key driver of high property taxes, so these problems must be addressed in tandem.
As a rural Midwest state, Iowa is confronted with unique economic challenges, including the need to attract more people and businesses. While Iowa is seeing some population growth, it is near the lower end of the spectrum for U.S. states.
In her Condition of the State address, Governor Kim Reynolds stated that tax rates matter and that they are more than just “numbers on a page.” In 2017, when Governor Reynolds assumed office the top income tax rate was 8.98% and the corporate rate was 12%, which was the highest in the nation. As a result of conservative budgeting and tax reform, Iowa now has a 3.8% flat tax and a corporate tax rate that is scheduled to be lowered until it reaches a flat 5.5%. Iowa is no stranger to pro-growth tax reform.
Further, the Governor stated that the pro-growth tax reforms are creating economic momentum for Iowa. “Despite a challenging global economy,” said Reynolds, “we’ve attracted over $20 billion in new capital investment since 2024, creating new jobs and new opportunities.” The high property tax burden is a notable exception to the pro-growth tax policy the state has pursued in recent years, and it’s not just a recent problem.
Governor Reynolds has noted that the property tax burden is especially hurting rural Iowa. “As we’re seeing property taxes escalating, people are leaving rural Iowa because they can’t afford to stay,” stated Governor Reynolds.
Over the past 20 years property taxes have increased over 107 percent. In fiscal year 2026, local governments will collect over $6 billion in property taxes from taxpayers.
Property taxes are pernicious in a way other taxes aren’t. The bill for property taxes is due simply by virtue of a family living in their home. Unlike sales taxes and income taxes, there are no steps an individual can take to change his property tax burden. The amount owed each year isn’t a result of individual choices, but rather spending choices by local governments.
Further, property taxes impact businesses. Property taxes represent an estimated 40% of the local tax burden for businesses. When all local taxes are taken into consideration businesses bear 56% of the burden. This has a direct impact on jobs, expansion, and entrepreneurship.
Governor Reynolds understands that local government spending is what causes high property taxes. “So this year,” said Reynolds, “we need to go after the real driver of the problem: Spending. Spending is what drives taxes—always has, always will. And the most reliable way to protect taxpayers is to limit the growth of government itself.”
As part of her property tax reform proposal the Governor is calling for a 2% property tax cap. This would mean that cities and counties would be unable to increase property tax revenue by more than 2% per year. This would force local governments to be more intentional about their spending choices. Importantly, a 2% growth cap does not cut budgets or eliminate existing services. It simply slows the growth of property tax collections to a responsible, predictable level that better aligns with taxpayers’ ability to pay.
Already, critics are arguing that the 2% cap will be detrimental to local governments and force them to make difficult budget cuts. In particular, they argue that inflation has caused costs of providing services, insurance, and wages to rise by more than 2% in recent years.
What these critics are missing, however, is how much growth potential may be unleashed when the burden of property taxes is lightened. The best solution for economic growth is to lower the property tax burden for both businesses and individuals.
High property taxes are the result of deliberate policy decisions. Iowa has the opportunity to chart a new policy course – one that allows Iowa to become more competitive. The solution for creating economic growth must be based on policies that lower taxes and spending and remove barriers to entrepreneurship.
John Hendrickson serves as Policy Director for Iowans for Tax Relief Foundation and Meg Tuszynski, PhD serves as Research Assistant Professor and Managing Director, Bridwell Institute for Economic Freedom at Southern Methodist University
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