This article was published in the Telegraph Herald.
The state’s notorious property taxes, are getting in the way of broader economic prosperity in Iowa and should be lowered for everyone instead of just a select group of economic development projects.
Iowa’s elected officials constantly tell us that state and local governments need to offer economic development, tax abatements and other incentives to remain “competitive” in the business site selection process. Unfortunately, they don’t seem to be able to follow that argument to its logical conclusion: High tax rates, especially the state’s notorious property taxes, are getting in the way of broader economic prosperity in Iowa and should be lowered for everyone instead of just a select group of economic development projects.
Property taxes are especially corrosive for economic growth because of the way they discourage long-term capital investments. If a company has a billion dollars to spend on building a factory, it makes good business sense for it not to make that investment in a place where the government will tax away a higher percentage of that factory’s value every year through high property taxes.
That’s one of the big problems holding back Iowa’s economic prosperity right now. Since 2004, property taxes in Iowa have more than doubled, which far surpasses the growth of population and inflation. Local governments will consume more than $6 billion in property taxes this fiscal year alone. By comparison, that’s enough to run the entire state government of South Dakota.
These high property tax rates matter to businesses, which consistently rank tax rates higher than state or local incentive programs when they’re surveyed about what factors go into their decisions on where to locate factories, headquarters, and other facilities. Elected officials obviously understand this, because they’re quick to offer various incentives and credits to cushion the impact for favored or high-profile companies.
One fundamental problem with this model is that it shifts the tax burden onto other taxpayers. Existing residents and business owners are left paying higher property tax bills than they otherwise would have had to subsidize economic incentive programs.
The other option is to cut public services. Local governments must balance their budgets, and a dollar that is lost to a subsidized office building or stadium is a dollar that cannot be spent on public services like police and fire departments, roads, sewers, parks, or libraries.
Rather than excusing a few high-profile businesses from paying the same taxes as everyone else, Iowa should reject corporate welfare and instead cut everyone’s property taxes.
Making Iowa a more affordable place for everyone to live, work, grow a business and raise a family will be a strong incentive for widespread and sustainable economic growth. At the state level, Governor Kim Reynolds and the legislature have already demonstrated this by reducing the income tax rate. It is time for local governments to address high property tax burdens.
The practical solution to accomplish this would be to implement a 2 percent property tax cap, which would limit cities and counties to increasing property taxes to 2 percent each year. Implementing this would hardly put local governments in the poorhouse, as it would only keep $250 million in new property taxes out of the hands of governments that already have $6 billion to work with. It also might make them think twice about throwing taxpayer dollars at a constant stream of stadiums, entertainment venues, industrial parks and other speculative “build it and they will come” projects that rarely deliver the promised “multiplier effect” results for local economies.
Iowa’s skyrocketing property tax rates make the state a less attractive place for businesses and families. It’s time to build on the historic progress Iowa has made in lowering its income tax rate and extend that same logic and mindset to reining in the state’s runaway property taxes.
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