Commercial property tax plan not beneficial
Comments (...)Gov. Branstad and Republicans in the Iowa House have reached consensus this week on a plan to slash commercial property taxes by 40 percent phased in over a period of eight years — the goal being to improve the atmosphere for businesses across Iowa.
Improving the business climate in Iowa is a good idea in theory, however, this proposed property tax cut has the potential to seriously cripple local government without actually providing a truly significant benefit businesses. It has the added potential to shift a higher proportion of the taxes onto the backs of Iowa homeowners, and that’s the wrong approach. We shouldn’t seek to improve our business climate at the expense of the average Iowan.
There’s still a long way to go before this plan reaches reality, and a lot can change. But in its current form, the plan appears to have a negligible impact on Iowa’s business climate while cutting hundreds of millions of dollars in revenue from Iowa municipalities across the state.
In Newton, it appears the tax cut could equal a loss of about $750,000 in revenue per year by the time the full 40 percent cut takes effect. If commercial property values increase between now and then, that number could be offset somewhat but likely would still represent a significant revenue shortfall. The proposed plan includes $240 million in state aid given to local governments to help them adjust to the loss of revenue, but at the end of the day, once the tax break is completely phased in and aid runs out, local governments will have to account for the lost revenue somehow.
That’s where things get tricky.
No one likes paying taxes, but it’s important to remember that taxes go to fund the services we receive from the government. This is especially true of property taxes, which directly fund our local government entities, city, county and schools. The more we pay in taxes, the better our services should be. The less we pay in taxes, the worse our services will be. Simple as that.
If our local government entities have revenue slashed, they will need to either increase taxes elsewhere or cut services — probably both.
The concern is that if property tax rates are increased across the board, it would result in residential properties seeing a significant increase just to maintain current revenue levels. Shifting the tax burden onto Iowa homeowners is not a solid plan to help Iowa businesses.
If no other sources of revenue were found, services would have to be pared. How will Newton or other communities attract new businesses with poorly maintained roads, slower snow removal services and unkempt parks? No property tax break will make businesses want to locate in such communities.
One could make the case that local governmental entities should learn to make do with the revenue loss over the short term in order to allow the improved tax rates to create more jobs and lure more businesses to Iowa over the long haul.
But will that really happen? How beneficial would these property tax breaks really be for commercial businesses?
Consider a hypothetical $300,000 commercial property in Newton. Let’s assume that local levies are set so that particular property owes about $12,000 in property taxes split amongst Newton, Jasper County and the Newton Community School District. A 40 percent cut would be another $4,800 on the bottom line of that business. That’s certainly helpful, but is that money enough to truly impact how a business that size operates? Such a business wouldn’t be able to hire even one more worker for money. More than likely, the actual impact on that business would be too minimal for any noticeable effect.
Recall that in the mid-’90s when the state eliminated the machinery and equipment tax that Maytag paid. Ultimately, that move harmed Newton as the city lost not only that revenue, but also an increasing number of jobs as Maytag laid off workers. In the end, that elimination of that tax didn’t keep Maytag in Newton.
Cutting property taxes slightly will not have a significant impact on Iowa’s business climate, and has the potential to impact services our local governments provide and/or lead to higher taxes for the average Newton resident.
That’s not a recipe for fixing Iowa’s property tax system or improving the business climate.
Comments
Total Comments 0 View/Add Comments |
There have been no comments made about this story. |
