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Gov. Terry Branstad wants to cut taxes on commercial and industrial property by 40 percent, but city officials in Iowa say that would simply shift the burden to homeowners, who could see a 20 percent increase in their tax rates as a result.
"They're wrong," the governor retorted. He said "It doesn't take a rocket scientist" to understand why: It's because taxable residential values are tied to agricultural values, and because taxable ag values are rising as a result of rising corn prices. That means, over time, ag valuations will pull up residential property valuations. That will expose more property value to taxation, which means millions of dollars of additional revenue for local governments would make up for the tax break for commercial property.
He is right about that part. The assessed value of farmland is growing, and the assessed value of residential property will be pulled up with it. Which is another way of saying homeowners will be paying higher taxes. And cities, counties and schools will have to count on every dime of that new revenue to make up for the loss of tax revenue on commercial property if Branstad's bill becomes law.
Thus, the cities are right about the result: The governor's tax proposal would cause a shift in taxes from commercial to residential property.
Iowa's property tax system is very complicated. But you don't have to be an expert in taxes, or even a rocket scientist, to understand that if the state reduces local governments' tax revenue from one group of property owners those governments will have to make it up from another group of property owners. That is unless the state reimburses the local governments for the lost revenue.
But the Iowa Legislature has been highly unreliable about keeping such promises.
So it is wise for taxpayers to keep their hands on their wallets whenever the governor and legislators say they want to cut taxes. That isn't rocket science. It's common sense.
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