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Iowa Democrats’ property tax reform plan prudent and effective

BY DI EDITORIAL BOARD | JUNE 24, 2011 7:20 AM

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The Iowa Legislature is in a time crunch as it struggles to work out a budget deal that will satisfy both Republicans and Democrats — and property taxes are at the heart of the partisan divide.

Tax cuts and school spending have both highlighted major partisan disagreements since Gov. Terry Branstad’s inauguration. Both parties want property-tax reform; the Democrat-controlled Senate has approved a bill that would offer direct tax credits, and the Republicans — led by Branstad — are pushing for more far-reaching cuts in commercial property taxes. While property-tax reform is necessary, it’s important that these reforms benefit small businesses and Iowa residents, not big business; to that end, the Legislature should accept the Senate proposal.

Iowa’s property taxes are substantially higher than those of the surrounding states. Iowa taxes commercial property at 100 percent of market value and residential property at 50 percent of market value; Illinois, on the other hand, taxes property at 33 percent of market value. The necessity of these reforms is evident if Iowa intends to be competitive with its neighbors.

The plan pushed by Branstad and the Republicans would tax property at 60 percent of market value — still high comparatively, but much lower than the current rate. This, they claim, would further the economic development of the state.

It would also be a boon for big business, amounting to monumental tax cuts. But these tax cuts would damage the funding for government services at a time when individuals are more dependent on them than ever. The tax cuts would also disproportionately benefit large businesses — and accordingly harm local governments in more industrial areas of Iowa. Johnson County Supervisor Rod Sullivan told the DI Editorial Board on Thursday that Johnson was one of the counties that would be the hardest hit by the GOP plan, which would cost the state $250 million per year after being phased in over five years.

“The House plan in my mind runs the risk of two things: First, I think it will mean potentially a big shift to residential property taxes, and second, I think it runs the risk of local governments being forced to cut a lot of services,” Sullivan told the Editorial Board. “Everything we do, from building permits and inspections to coming to get a marriage license or a birth certificate to registering a vehicle to health and human-service programs … everything could suffer some sort of cut.”

Republicans counter these criticisms by arguing that the benefit to the economy would balance out the loss of funding for government services; lower property taxes would encourage out-of-state businesses to set up operations here, leading to more jobs and a greater economic benefit for average Iowans.

Obviously, this is a difference rooted in the major philosophical disagreements between the parties. But in the current economic climate, it’s unlikely that business is held back by taxes. Iowa’s neighboring states, even with their lower property-tax rates, are still struggling with the economic downturn; Iowa is doing comparatively well, even.

In other words, the reflexive effort to lower taxes when confronted with an economic crisis must be resisted, in part because a drastic reduction in taxes means a reduction in government services. If this tax cut benefits large out-of-state corporations more than the average Iowan, it’s difficult to see how the loss of funding for public goods would balance with a general benefit to Iowans.

The Senate-approved plan, through tax credits, would lower residents’ current economic burden. It would also provide small-business owners an incentive for staying in Iowa — benefiting Iowa’s home-grown businesses rather than out-of-state companies that may or may not be lured in with lower taxes.

If no agreement is reached by June 30, the state could shut down. Lawmakers on both sides of the aisle are frantically scrambling to prevent that from happening; after prevaricating, Democrats have accepted the Republican proposition for 0 percent allowable growth for school funding. It’s not too much to suggest a bit of compromise on the other end, too.

Instead of stonewalling this compromise, House Republicans should put the best interest of residents and small-business owners ahead of big businesses and agree to the Senate measure. Such a compromise would prevent a government shutdown, and it would be a victory for all Iowans.

We can’t afford to sacrifice funding for beneficial services (particularly the social safety net) in the vague hope of attracting big business.


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