State policymakers across the nation are struggling to reform property taxes. Taxpayers are growing more frustrated as their property tax bills continue to increase.
Many states have successfully reduced income tax rates, but property tax reform remains a dilemma. How to provide real property tax reform is not easy. This is becoming an albatross from many policymakers mainly because there are numerous special interests involved, which make reform almost impossible.
Some legislators in South Dakota have identified the cause of high property taxes and they are trying to advance legislation that will provide relief for their taxpayers. State legislators from across the nation should take encouragement from these legislators and duplicate their efforts.
The cause of high property taxes is local government spending. Any property tax reform solution must focus on limiting government spending. Regardless of the tax, spending drives the level of taxation. Republicans in the South Dakota House of Representatives rejected a tax shift, which would have shifted property taxes to sales taxes. The proposed tax shift if approved would raise the sales tax from 4.2 percent to 5 percent and generate an estimated $280 million in property tax relief.
In rejecting the tax shift, Republicans on the House State Affairs Committee are arguing that “property tax reform should start with government spending cuts and include difficult discussions about public education funding.” Further, Rer. Greg Jamison stated that “generating new revenue isn’t what this body wants to do, it’d rather cut spending.”
Rep. Jamison has introduced a property tax cap bill that would limit local government spending. The proposed legislation would “lower limits on local governments’ annual increases in property tax collections – for schools, counties, cities and others – from 3 percent to 2.5 percent, which could force local governments to make cuts and lower property tax burdens for all types of properties.”
“Our first look should be how we can reduce the government, how we can provide cuts, before we start thinking about how we’re going to increase taxes to pay for a tax,” stated South Dakota Speaker of the House Jon Hansen.
In addition, Rep. Jamison has also introduced another property tax reform measure that would improve transparency for taxpayers. This transparency measure would make improvements to South Dakota’s property tax statements which are sent to taxpayers. Among the listed improvements to the property tax statement is the requirement that each notice “must provide an example of the computation of the total tax for an individual.”
Speaker Hansen and Rep. Jamison have correctly identified the correct approach to property tax relief by addressing government spending. Addressing government spending is never easy and proponents for the sales tax increase argued that it would provide property tax relief and that “tourists would help foot the bill.” However, the problem with tax shifts is that they seldom lead to lower property taxes because local government can continue to spend.
It is unclear if Rep. Jamison’s property tax cap legislation will advance, but Iowa legislators should take encouragement from the boldness of their ideas and their willingness to address local government spending, including education. Public education is the leading driver of property tax bills and for too long education has received a “free pass” to automatically increase.
Policymakers in South Dakota are correct that “property tax reform should start with government spending cuts and include difficult discussions about public education funding.” Other states are also considering property tax caps to focus on spending. The North Dakota legislature is debating a 3 percent property tax cap. The Iowa legislature is also considering a 2 percent property tax cap.
Local government spending is driving the property tax problem. As legislators continue to contemplate property tax reform in numerous state capitals, they should follow the advice of Speaker Hansen and place their focus on reducing government spending.
