March 2012 Brief: Volume 19, Number 8
|Click Here for a pdf verison.|
Iowa Property Tax Reform: A One-Eyed View of Government
by Sven R. Larson, Ph.D.
America is in dire need of lower taxes. Our corporate taxes are punitively high, and even income taxes are taking a heavy toll on families around the country. When combined, federal, state, and local taxes can claim more than half of a person’s income on the margin. But perhaps the biggest problem on the tax front is the property tax. It is a long-lasting cornerstone of American taxation and is as deeply rooted in our way of funding government as the notion of public education, which is not a coincidence since property taxes were an original source of funding schools. Today, though, government has sprawled in all different directions. Local governments are involved in everything from housing to sports arenas and convention centers. They are also taking on more and more responsibilities for spending programs that are jointly funded with states and the federal government. Consequently, their budgets have exploded, and their need for revenues has become insatiable. It is therefore no coincidence that whenever there is talk about tax reform, especially property tax reform, cities and counties get worried. The current efforts to reform property taxes in Iowa are a case in point. From the Des Moines Register:
It is easy to see why Iowa’s local governments are worried. Their spending record is not exactly fiscally conservative. The U.S. Census data for local government spending shows that Iowa’s counties, cities, towns, and school districts expanded their budgets by more than 13 percent in two years, from $12.8 billion in 2007 to $14.5 billion 2009 (latest year available). In fairness, this is less than the 17.8 percent expansion of state government spending in Iowa during that time, but this does not make it easier for taxpayers to keep up with the growth in government.
The people who pay for this government spending spree are, ultimately, Iowa’s families. How many of them saw their income grow 8, 7, or even 6 percent per year in the last years before the Great Recession?
But questions about who is going to pay for all this government spending seemed to be shoved to the side when (tax-funded) lobbyists for the local governments in the Hawkeye State had their chance to comment on the proposed property tax reform:
On Tuesday, representatives from those groups described their concerns, focusing on the bills’ limitations on municipalities’ ability to raise revenue through property taxes and the uncertain impacts the reforms could have on their budgets. ‘We do see some concepts here that are trying to help cities absorb the loss. …’ League of Cities lobbyist Jessica Harder told the subcommittee. ‘We at least appreciate the movement toward that, although overall we still are opposed to [the] bill because it is a significant revenue cost to cities.’
I am not a state Legislator in Iowa, and maybe that is a good thing for both me and Iowans. But if I were, I would throw a question back at this lobbyist: How about reviewing where all that extra spending went that you took on back in the heydays before the recession?
The laments from the local governments are even more difficult to understand when we take into account the details of the two proposals for tax reform:
Even when the reform leaves the local governments with a nicely padded cushion, they still complain loudly. This is the same exhibition of insatiability, spendoholism, and utter self-centeredness that runs through almost every legislature and almost every government bureaucracy in the country.
There is one major flaw in the proposed tax reform: it is an isolated incident of fiscal conservatism. If the bill was tied to structural reforms that would relieve counties and cities of spending mandates imposed from the state, it would be a lot easier for those local governments to cope with this proposed reform.
Tax reform only works over the long haul when tied to spending reform. The best lesson on this is from California’s classic Proposition 13, which tightened the stream of revenue increases from property taxes without imposing an equally strong cap on the growth in government spending.
Best of luck to the tax cutters in the Iowa state legislature. They have not made their own work easy, but there is still time to correct the errors and get this one right.
Dr. Sven R. Larson is a Research Fellow with Wyoming Liberty Group and a former resident of Iowa. This article was first published in Dr. Larson’s blog, The Liberty Bullhorn, which can be read at http://libertybullhorn.com/.
Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used:"Reprinted by permission from INSTITUTE BRIEF, a publication of Public Interest Institute." The views expressed in this publication are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.
All of our publications are available for sponsorship. Sponsoring a publication is an excellent way for you to show your support of our efforts to defend liberty and define the proper role of government. For more information, please contact Public Interest Institute at 319-385-3462 or e-mail us at Public.Interest.Institute@LimitedGovernment.org