Iowa’s too-high property taxes

Iowa is sitting on a budget surplus of nearly $2 billion, so flush with all that cash, Gov. Kim Reynolds wants to eliminate the state income tax.

As a taxpayer, that sounds great, but as a resident, where will the money come from to pay for what we can’t afford already? Storm Lake needs $80 million for water system improvements, and has gone begging to the federal government without success and the state won’t share any of its wealth. Where will the money come from if income taxes are eliminated?

The only alternatives are increasing property and sales taxes.

Iowa’s residential property taxes are already high. We have family and friends who live in Indiana, a largely rural Midwestern state that is similar to Iowa in many respects (although its population is twice as large). I decided to compare property taxes.

I looked at a new home in a fast-growing metropolitan suburb and an older home in a small rural community and compared them to similar homes in Storm Lake.

In both cases, Indiana property taxes were half as much as a comparable home here. That’s thousands of dollars a year for most homeowners.

Indiana’s income tax rates are also lower than Iowa’s. Indiana’s rate is 3.15%. Iowa  taxes range from 4.4% to 6%, although the rate will drop to a flat 3.9% in 2026.

California has a reputation for high taxes, but that’s not necessarily the case. Until 1978, property taxes in California, like Iowa and most other states, were adjusted annually based on the property’s market value. Consequently, a person of modest means could be priced out of their homes because skyrocketing market values forced skyrocketing property tax increases.

Proposition 13, passed by California voters in 1978, froze property taxes on the value of the property at the time of sale. That meant your property taxes would largely remain the same as long as you owned your home. I know a man who bought a house in the San Francisco Bay area in 1988 for $200,000. That home is now worth almost $3 million and his property taxes are still less than what we pay on our $150,000 home in Storm Lake.

By the way, if I lived in California my state income tax would be $0 this year.

Sales tax rates in Iowa and Indiana are the same at 7%. California is 7.25%.

Income taxes are the fairest way to raise money because they tax people based on their ability to pay, while regressive taxes like property and sales hit people regardless of their income. Since Iowa is moving away from income taxes, we can expect the burden to shift more to property and sales taxes.

There will soon come a time of reckoning when people can’t afford to live in Iowa, or be forced to put up with pot-hole roads and dry water systems because we starved our tax system. We’re not here for the weather so cost of living is an important factor. In Storm Lake, we already can’t pay for essential services like water and streets. We only need to look at our neighbor Kansas, which nearly went bankrupt a few years ago under a similar ill-considered tax “reform” agenda as young people fled the state for better opportunities and more amenities in Denver, Chicago and Minneapolis. Schools and nursing homes are closing all around us.

Our legislators and governor need to figure out a balanced tax agenda before it’s too late.