Last week witnessed some pretty important dates for Iowa taxpayers. Clearly, the most obvious date was April 15, the deadline for all taxpayers to file their federal tax returns.
Just a few days later, April 18, marked an occasion known as “Tax Freedom Day.” Tax Freedom Day is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year. Tax Freedom Day provides Americans with an easy way to gauge the overall tax burden that we share.
Essentially, the nation’s total tax collections are divided by the nation’s total income. According to the Bureau of Economic Analysis, every dollar that is officially called income by the government is counted, and every payment that is officially considered a tax is counted. The resulting percentage is then converted into days based on a 365-day calendar year.
For 2013, Tax Freedom Day is April 18th, five days later than last year. This year, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of the income. April 18 is 29.4 percent of a 365-day year. The latest Tax Freedom Day on record was May 1, 2000.
Also last week, the Iowa Senate and Iowa House passed their respective versions of Property Tax Reform. The Senate version may look familiar as it has been modeled for the past three years after the Iowa Homestead Tax Credit.
Major points of the House version include:
Rollback
• 20 percent rollback of taxable value on commercial and industrial property. 5 percent per year over 4 years
• Approximately $339 million in property tax relief when fully implemented
Backfill
• A standing unlimited appropriation is created to backfill lost revenue to local governments.
• Backfill appropriation is exempt from future “across the board” cuts
• TIF properties held harmless
Assessment limitation
• Assessment growth limitation moves from 4 percent to 2 percent on Ag and residential immediately
• After the 20 percent forced rollback, three classes of property are tied together with a 2 percent assessment growth limitation (Commercial, AG and Residential)
• Industrial will not be tied with the other three classes, but will mirror commercial. Meaning, whatever commercial is assessed at, industrial will receive the same treatment.
School District Funding
• Raises the school foundation formula from 87.5 percent to 95 percent over 4 years.
Multi-residential Property Classification
• Adds a new property tax classification for nursing homes, assisted living facilities, residential care facilities, mobile home parks, manufactured home communities.
• Assessed as commercial the first year, then rolled back to 60 percent over four years. At that point, taxed the same as residential.
Telecommunications Property Taxation
• Central office equipment is exempted from taxation
• Land, buildings and outside plant is then rolled back to 80 percent the first year, 60 percent the second.
One of the major concerns raised with the House version of Property Tax Reform has been from local municipalities who are apprehensive about trusting future legislatures with fulfilling the promise made by the current one; Specifically the promise to backfill the revenue losses to local governments due to the 20 percent rollback. While I agree that is a valid concern, I would also point out that future legislatures would have to take action to defund the backfill. In other words, the backfill to local governments is automatically funded as an on-going expense of state government, in the House version.
Contrast that with the Senate version. Their version of property tax reform would require the legislature to actively appropriate the property tax credit fund from the General Fund on an annual basis. It would not happen automatically.
Therefore the Senate version does not lend much confidence and predictability to Iowa businesses as the House version would. The maximum amount that could be appropriated in the Senate’s property tax credit fund would be $250 million. While the House version provides approximately $339 million in property tax relief when fully implemented.
One thing is for certain, the cost of doing nothing on property tax reform is detrimental to Iowa’s economy.
An example of this comes from one of Knoxville’s significant corporate citizens, 3M Manufacturing. Earlier in the session, plant manager Greg Couves gave compelling testimony to the subcommittee, overseeing the House version of property tax reform, as to why “property tax relief is critical if companies are to be encouraged to make additional investments in Iowa.”
Being a global enterprise, Mr. Couves explained that 3M’s global competition is not just externally with the products they offer, but also internally when it comes to investment dollars for plant expansion and upgrade efforts. In terms of investment, he stated that his first line of competition is with other 3M plants around the world.
In his testimony, Mr. Coves stated: “My plant was recently in a year-long internal competition for a $5 million investment for a new tape-making line. My chief opposition was a 3M plant in Poland where tax rates are much lower. My plant has better productivity, lower waste levels, and lower costs, but nearly all of that advantage was wiped out by tax rates. 3M and our plants can grow here in Iowa, but we need help with tax rates.”
I am certain this testimony can be replicated many times over across our state. The time for partisan wrangling and foot-dragging is over. The time for passing meaningful property tax reform to grow Iowa’s economy is now!
I appreciate and welcome your comments and feedback. Please feel free to contact me with your issues or concerns as they arise either by phone (515-281-3221), e-mail (greg.heartsill@legis.iowa.gov), or in person when visiting the Capitol or a town hall forum. Also, if you would like to subscribe to my weekly electronic newsletter, please send a quick note via e-mail and I’ll put you on the list.
On Friday, April 26, I will be at the Two Rivers Cooperative in Tracy for morning coffee and the Columbia Community Center at 5 pm. I hope to see you at one of these forums.
I am honored to be your representative in the Iowa Legislature. Until next time, God bless!