Any way you slice it, the commercial and industrial property tax cut in the amended House Omnibus Budget bill (HF697), shifts tax responsibilities to individuals and families. Apart from being unnecessary, as Iowa’s tax rates are average, it violates the principles of shared investment and contribution.
Amendment H-1735 to HF697 rolls back commercial and industrial property tax assessments by 25 percentage points over five years.
To attempt to placate concerns of cities and counties, legislators created a “commercial and industrial property tax replacement fund.” Each year, the Legislature would draw from the state’s General Fund to provide cities and counties with money to make up the revenue they will lose in the property tax rollback.
The plan has serious flaws as the Iowa Fiscal Partnership has noted.
First, it’s not at all clear that the funds promised would adequately replace the revenue that cities and counties would lose in the C/I property tax cut. And of course, state aid to local governments is never guaranteed – the experience of other states suggests that aid to local governments would fluctuate considerably as states weather recessions and fiscal challenges.
If the replacement funds turn out to be insufficient or if the state doesn’t fully deliver on its promises, cities and counties would have to find other ways to raise the revenue they need. That could mean increased property taxes for residential and agricultural landowners — or lost services.
Second, even if the replacement fund were to adequately replace lost revenues, individuals’ and families’ share of local property tax would be greater. And, with replacement fund monies coming from the state’s General Fund, families would subsidize that disproportionately because the individual income tax is the largest single revenue stream for the General Fund, comprising nearly half of its revenues.
Rather than having big businesses contribute to our cities and counties, individuals and families would pick up an even larger portion of our city and county governments’ tab.
Big business would be getting a good deal, at the expense of Iowa families and farmers.
Posted by Andrew Cannon, Research Associate