Iowans are growing frustrated with high property taxes. In the last few election cycles, election officials from both political parties have remarked that a top concern that Iowans have shared consistently has been high property taxes. During the last session, the legislature passed a comprehensive property tax reform measure, which made some important reforms, but it failed to address the cause of the problem, local government spending. Without limiting local government spending, any future property tax reform will fail to provide relief, and only exacerbating the problem.
Since 2004, property taxes in Iowa have increased close to 110%, surpassing the growth of population and inflation. Local governments will consume over $6 billion in property taxes this fiscal year alone. Even with the so-called “limits” placed on cities and counties by the recent property tax reform law, local governments continue to increase their spending.
High property taxes impact all Iowans. Too often, the focus is on homeowners, but property taxes also impact small businesses. In addition, property taxes have a substantial impact on economic growth. The Tax Foundation’s 2025 State Tax Competitiveness Index ranks Iowa 20th overall, which is a substantial improvement. In 2020, Iowa ranked 44th in the Tax Foundation’s rankings, and the reason for the vast improvement is the historic income tax reforms that Gov. Kim Reynolds and the Iowa legislature implemented.
Iowa has set a benchmark in income tax reform. The state once had some of the nation’s highest income tax rates, with the top individual rate near 9% and the corporate rate at 12%, the highest in the country. Starting in 2025, Iowa’s tax code will be comprised of a single flat rate of 3.8%. The corporate tax rate, currently 7.1%, will continue to be gradually reduced until it reaches a flat rate of 5.5%.
Gov. Reynolds and the Iowa legislature were able to achieve these historic income tax reforms as a result of conservative budgeting, which allowed rates to be reduced.
Spending, regardless of the tax, drives taxation. One of the reasons why past property tax reforms have failed to provide meaningful relief is that they all have neglected to address the direct cause, that is, local government spending.
Local governments should follow the example of Gov. Reynolds and the Iowa legislature by reducing their spending and then lowering property tax rates.
Addressing spending is never easy, which is why policymakers should consider a levy limit or a local government budget limit. Most states have some form of property tax levy limit. Applying a strict 2% property tax cap on the growth of property taxes would force local governments to restrain spending. If Iowa had a 2% property tax cap this year, it would have saved taxpayers $250 million.
Iowans are demanding property tax relief, and the budgets of too many local governments are growing beyond the taxpayer’s ability to pay. This is why a 2% property tax cap would not only provide property tax relief but also encourage economic growth.
