Growth should be part of the property tax debate

Over the past 20 years, property taxes in Iowa have increased by nearly 110%, outpacing inflation and population. In Fiscal Year 2025, local governments set a precedent by collecting over $7 billion in property taxes, the highest amount in state history. The Tax Foundation ranks Iowa with the 10th highest property tax burden in the nation. Iowa clearly has a property tax problem.

The cause of high property taxes is local government spending, which is why past reforms have failed. Any property tax reform solution must focus on limiting government spending. Regardless of the tax, spending drives the level of taxation.

In attempting to prevent cities and counties from profiting from assessment windfalls, part of the 2023 property tax reform law, the infamous HF 718, created a tiered growth formula. Depending on how much a jurisdiction grows, this formula would have to use some of the revenue from the growth to reduce property taxes. For example, growth rates above 2.75% would require revenue reductions between 1 and 3 percent, depending on the increase.

Many local government officials have balked at HF 718 and are arguing that it restricts their spending and forces them to make difficult budgetary decisions. However, the spending from FY 2025 demonstrates that spending continues to increase. For too long, local governments have been on Autopilot as government spending has increased and cities and counties have taken advantage of assessment windfalls.

Local government officials often forget that property taxpayers, whether individuals, families, or small business owners, have to make hard budget decisions every day.

Further, local officials argue that collecting more property taxes will translate into economic growth. Government spending is not the source of economic growth.

Economic growth should be part of the property tax debate. Growth results in job creation, entrepreneurship, and more economic opportunities, all of which generate more revenue. Iowa’s high property tax burden discourages growth and impacts economic decisions. The property tax burden also factors into whether or not people or businesses want to relocate to Iowa.

Lowering the property tax burden will help encourage more economic growth, especially by providing more incentives for small business owners, some of Iowa’s leading employers. Many small businesses, especially in this current environment, are struggling to pay their property tax bills.

The government-subsidized economic model seldom works. This is why property tax reform is so important. Lowering the property tax burden will help create economic growth and more opportunities for both businesses and individuals.

Since 2018, Iowa has made tremendous progress in lowering income tax rates and making the tax code more competitive. Iowa’s flat 3.8% income tax was only possible because of conservative budgeting. It’s time for local governments to follow the example of Gov. Kim Reynolds and the legislature when it comes to fiscal conservatism.

Pro-growth property tax reform is possible, and it begins with addressing local government spending. Through conservative budgeting and spending restraint, local governments can lower property taxes. The status quo is unsustainable because high property taxes will increasingly become more of a deterrent to growth.

Iowa Sen. Jason Schultz provides a rule that should guide policymakers when it comes to tax policy. The “Schultz Rule” states that when it comes to spending “both Republicans and Democrats need to realize that tax policy is affected by spending. And when you start seeing spending creeping up … you can’t have good tax policy.”

This is why it is crucial that future property tax reforms consider spending or levy limitations that will force local governments to lower spending.

Matt Everson is Iowa director of the National Federation of Independent Businesses (NFIB), and John Hendrickson is policy director with Iowans for Tax Relief Foundation.