Tax cuts have consequences. In the case of the massive commercial property tax cut enacted two years ago, those consequences have become all too real.
Iowa’s economy continues to rebound and state revenues are projected to rise nearly 5 percent, yet we find ourselves struggling to finance our most important basic services, like education. Why? Because we are giving away most of the increased revenue to commercial property owners, with no public benefit to show for it.
The commercial property tax cut will result in an estimated $277 million hit to the state budget next fiscal year, more than double this year’s cost as provisions phase in. This means that the property tax cuts will consume 68 percent of the estimated $408 million in increased state revenue. The small amount remaining is far too little to cover even the normal increases in the cost of providing public services due to inflation.
While the legislation has been sold as a general property tax cut, only 11 percent of the property tax reductions will flow to residential and agricultural property owners next year. The rest goes to owners of commercial property, apartment buildings, industrial facilities, railroads and utilities.
About $5 million will flow next year to the 11 largest big-box retailers, none of them Iowa companies, and none of them needing tax cuts. Overall business tax levels in Iowa are below the national average — a point you rarely hear, and never from the business lobby.
What exactly are the consequences?
The cost of running schools will keep rising faster than state aid, resulting in layoffs, increased class sizes, program reductions, and more years of outdated textbooks.
The Governor’s budget proposes sizable cuts to state health care programs and requires state agencies to finance salary increases by reducing staff, thus reducing state services.
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Once again we will not expand the state’s preschool program for 4-year-olds, a measure that has been shown to be an effective economic development tool.
Our child care assistance program will keep penalizing families for earning more. Bipartisan support for funding to improve water quality and expand access to mental health care will likely be for naught.
We have a problem of priorities. We keep underfunding services for average Iowa families — education, health, work supports, natural resources — to finance massive tax reductions to businesses that don’t need it. And we spend in excess of $350 million each year on business tax credits that continue on autopilot, with no sunset, despite the state’s own analyses that fail to find evidence of appreciable benefit to the state from some of the largest of these subsidies.
It is time to admit that the tax cuts enacted in 2013 were excessive and are causing long-term damage to the state. At the very least, the $50 million increase in the business property tax credit portion of those tax cuts scheduled for next year should be delayed or eliminated.
But that is not enough. There should be a moratorium on any further tax cuts or tax credits, of any kind. And all business tax credits should be subject to effective caps and sunsets to force a serious evaluation.
Without such measures, we will continue down the road of tax-cutting our way to mediocrity and shortchanging our children’s future.
• Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. Comments: email@example.com