Governing magazine crowned Gov. Kim Reynolds among 2024’s leading public officials, lauding conservative reforms that slashed Iowa’s punishing 9% income tax to a lean 3.8% flat rate by 2025.
Now she’s targeting an even thornier challenge: overhauling Iowa’s tangled property tax system. If she succeeds, it will be a new roadmap for other states to tackle their own pro-growth reforms.
Iowa’s property tax burden ranks a disappointing 44th nationwide, according to the Tax Foundation’s state tax climate index. Only Illinois fares worse among neighboring states, while Nebraska is scrambling to improve its 40th-place standing.
The crush of these levies leave many Iowans feeling like tenants, perpetually paying rent to government landlords.
Property taxes also act as a wealth tax, punishing homeowners for paper valuations that ignore their actual bank balances. It’s easy to blame assessment methods. While this matters, it is not the cause of high property tax bills and too much focus on assessment leads to not only poor reform, but also failure to provide meaningful tax relief.
Since 2004, Iowa property taxes have skyrocketed 110%, dwarfing combined population and inflation growth. Cities and counties gorge on 6-7% annual spending increases while most Iowans’ wages stagnate amid inflation. Local governments will swallow over $6 billion in property taxes this fiscal year alone.
The root cause is runaway local spending.
To avoid any discussion on that thorny subject, policymakers often look at alternative property tax reform solutions. Some of these include tax shifts, which result in increasing one tax to lower another or creating a new tax to “buy down” the rates of another. New or increased sales tax is often a favorite tool.
It’s not a new idea. In 1934, Iowa lawmakers introduced the state’s first sales and income taxes with the stated purpose of providing property tax relief.
The plan backfired spectacularly. Instead of relief, Iowans found themselves trapped in a triple tax bind, high property taxes with the addition of new sales and income levies.
Another poor fiscal policy solution is to have the state budget assume more responsibilities from local governments. This approach may also include having the state “subsidize” local government aid. In the past, the legislature has provided “backfill” payments to cities and counties, and more recently the legislature eliminated the county mental health levy and took responsibility for mental health funding, a $152 million annual commitment.
Instead of providing property tax relief, many counties pocketed the windfall and continued hiking property tax rates.
The solution for Gov. Reynolds and the Iowa Legislature is simple, and it’s the same formula that powered Iowa’s income tax transformation: address the government spending that drives taxation first, then cut rates. Pare back unnecessary local expenditures, then cap property tax growth at 2%, saving taxpayers $250 million a year. Other states can find the right math for their own circumstances, but overall, this two-step process is how it can be done just about anywhere.
Gov. Reynolds has proven that lean budgets, government reform, and lower taxes can coexist through disciplined leadership. If Iowa keeps focused and determined to fix the property tax issue, it will cement its position as a leader among states pioneering pro-growth economic reforms.
John Hendrickson serves as policy director for Iowans for Tax Relief Foundation. Pete Sepp is president of the National Taxpayers Union.
This article was originally published at www.thecentersquare.com
