While Utah contemplates next steps to address reforming Utah’s aging tax structure in order to keep Utah in its #1 spot as the best place in the country to live and do business in, other states are on the move in trying to solve similar problems.
Iowa is one of these states. Over the past few years, Iowa has begun the process of reforming its property tax system. Iowans have, like many other states’ taxpayers, looked to control perpetual property tax increases. Unlike Utah, other states have property tax laws which allow for automatic increases which are not done in a way that is transparent to the taxpayer.
Iowa is working to fix this, and passed a new law which took effect in 2019. This new law requires county and city (school districts were not included) governments to hold a public hearing if the proposed budget increases more than two percent above the previous year, and a supermajority vote for the increase to be enacted. This new two percent “soft cap” is meant to control the growth of property taxes and require local governments to provide more transparency within the local budget process.
Utah, on the other hand, requires entities go through the Truth-in-Taxation process, if an entity is seeking to exceed its certified tax rate, which keeps governments from automatically collecting more property tax revenue than they received the prior year (excluding new growth). Iowa taxpayers and organization are rallying behind Utah’s law and demanding state government continue to model their property tax law after Utah’s.
But that’s not all Iowa is doing.The Republican Governor of Iowa, Kim Reynolds, has proposed building on reforms that were passed in 2018 that rebalances tax collections between income and consumption in a way that is somewhat similar to what Utah’s Legislature just passed in December. Her proposal includes the following, among others:
- Increases the state sales tax rate one full percentage point from 6% to 7%.
- Cuts the individual income tax rate by about 10% in 2021, with further cuts in 2023 bringing the rate down from about 8.5% to 6.5% and then 5.5%. It also reduces the number of brackets from nine to four.
- Additional measures such as:
- repealing the state water excise tax,
- exempting diapers and feminine hygiene products from sales tax,
- reducing the statewide mental health property tax levy and instead have more mental health spending funded by the state directly,
- and expanding access to the Early Child Development and Child and Dependent Care tax credits by doubling the eligibility limit from $45,000 to $90,000.
These changes, if enacted, would improve Iowa’s competitive position on tax policy by quite a large margin. According to the Tax Foundation in Washington D.C., Iowa’s rank on income tax policy would jump from 42nd in the nation to 20th and it’s overall rank would improve from 42nd to 37th in the nation.
Governor Reynolds’ proposal would move Iowa to a more stable tax structure by shifting to more consumption based taxes and lowering the tax burden on growth and investment. It would also take a large step in the direction of a more simple, more neutral and more pro-growth tax code. It will be interesting to watch the reaction to the proposal from taxpayers and policymakers in Iowa as the proposal moves forward.
This shows Iowa, and many other states, are watching Utah carefully and enacting policies to compete with our state. Utah needs to continue to be forward thinking in our approach to tax policy to ensure Utah remains the #1 state in which to live and do business.