Tuesday, September 8, 2020

Iowa's Tax Climate Gets Failing Grade

Iowa is one of five states to earn an overall "A" grade for the health of our manufacturing industry on a scorecard recently released by Ball State University.

While Iowa scored high in categories like logistics, human capital, and fiscal health, the state's only "F" is our tax climate; grades were assigned using a bell curve distribution. 

The map below shows Iowa stands out from our neighboring states as the only one to receive an overall "A" and that is something we should all be proud of. But the “F” in tax climate sticks out and really gnaws at us. Few factors garner as much policy interest as do state and local taxes. To measure tax climate, Ball State looked at corporate, income, property, sales and use, and unemployment insurance tax data.

Image source: Ball State University 2020 Manufacturing Scorecard 

If ITR were assigning grades to Iowa’s tax climate, we’d likely assign an “incomplete” rather than an “F”. 

The legislature has passed, and Governor Reynolds has signed, significant property tax and income tax legislation over the past several years, some aspects of which are still being phased in. Much has been said by our elected officials about ensuring that progress continues and even during the COVID-impacted legislative session of 2020, both Governor Reynolds and the Iowa Senate proposed ways to improve our state’s tax climate.

Manufacturing is critical to Iowa's economic strength, and 2020 has shown that businesses can operate virtually anywhere. Iowa needs to address the state's high tax burden. Businesses, entrepreneurs, and individuals will vote with their feet and move to states with the best regulatory and tax climates.

Which States Are Poised For
Economic Recovery After COVID-19?

The coronavirus economic shutdown crushed many businesses and sent millions into unemployment. An article on the website Issues & Insights says economic policy will help some state economies bounce back faster than others:
Considering how economically competitive states widely outperformed high-tax states coming out of the Great Recession, state policymakers looking to capitalize on economic reopening should consider ways to make their state more competitive relative to their peers.

First, competitive states avoid passing tax increases during temporary budget shortfalls resulting from an economic downturn. While the revenue might help fix a budget gap in the short term, those tax increases often become permanent and dampen economic growth, discourage business in-migration, and erode tax bases in the long term.

Competitive states also avoid excessive taxes on capital, like personal income taxes and business taxes.
Using the Rich States, Poor States Index,the top five states in economic outlook are Utah, Wyoming, Idaho, Indiana, and North Carolina. The least competitive states are California, Illinois, New Jersey, Vermont, and New York.

Iowa falls in the middle of the pack with the 27th best economic outlook.

It's never too early for legislators to start considering how to remove barriers to businesses and consumers resuming "normal" activity. 

Iowa's High Property Taxes

Because property taxes are tied to housing values, the actual dollar amounts of property taxes tend to be higher in places with higher housing prices. In order to provide an apples to apples comparison, The Tax Foundation took housing value into account in their most recent property tax comparison.

As a percentage of home value, Iowans pay the 12th highest property taxes in the country. Illinois and New Jersey have the highest, while Hawaii and Alabama have the lowest. See map.

Over the last two months, ITR compared property tax increases to population and school enrollment growth in communities across Iowa. If you missed it, take a look with the links below: Every dollar government has was first taken from someone who earned it. When the government grows, spends, and takes from taxpayers faster than population growth and inflation, elected officials need to clearly explain why.

Links of Interest

The economic picture is brightening for both Iowa and the Midwest. Creighton economist Ernie Goss says the survey’s Business Conditions Index rose to its highest level in two years.- Radio Iowa
"A small consolation is that COVID-19 has opened up the possibility of significant regulatory reform in other areas, and that same spirit may apply to the laws and regulations governing capital formation." - Mercatus Center
Taxes Don't Go Down: Des Moines receives more than $38 million in local option sales tax that was promised to reduce property taxes; $19 million used for 'property tax relief', $8.5 million into 'reserves' - Business Record via The Iowa Morning Chores daily email. Subscribe by emailing
The federal deficit could hit $3.3 trillion this year. As a result, federal debt held by the public this year could increase to 98% of GDP. - Fox News

Recent ITR Watchdog Email Updates

  • County property taxes compared to population growth
  • Who pays the most in property taxes?
  • 66% say taxes are a deciding factor
  • Iowa's Rich States, Poor States ranking
  • School district enrollment and property tax comparison
  • Are Iowa's public universities bloated or under-managed
  • City population and property tax comparison
  • Property tax solution survey

Winning Elections is the Best Taxpayer Protection

Vote and encourage like-minded friends to as well. 

Click the image below to visit the Iowa Secretary of State's website to register to vote, request an absentee ballot, or to find your polling place. 
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It’s easy for politicians to yield to noisy special interest groups when the taxpayer keeps quietly paying the bills.
Copyright © 2020 Iowans for Tax Relief, All rights reserved.

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