Land Tax Reform Proposed for Iowa
Robert Willis
[Reprinted from
GroundSwell, January-February 2005]
Retired Des Moines horticulturist Robert Willis on
December 14, 2004, submitted a Tax Reform Proposal to Iowa's
Property Tax Implementation Committee. Bob Willis was, with Damon
Gross of Waterloo, IA, the cohost of the Council of Georgist
Organizations conference held in Des Moines in September, 2000. At
that conference, Dr. William Batt, Central Research Group, Albany,
NY, presented a detailed "Iowa Tax Shift Plan: Shifting from
Conventional Property Taxation to Land Value Tax." Bill Batt
was assisted by Bob Jene, Chicago, in analyzing statistics, facts,
graphics, and GIS simulation from the Polk County, IA assessor's
office. (See Sept.-Oct. 2000 GroundSwell)
The 2004 Iowa Legislature General Assembly charged the Property
Taxation Review Committee that it shall "review and analyze the
following:
- a. Revenue Sources available to local governments, including
taxes, payments in lieu of property taxes, fees, state
appropriations, and federal moneys;
- b. The portion of state revenues annually appropriated, or
otherwise disbursed, to local governments;
- c. Exemptions, credits, deductions, exclusions, and other
reductions in local taxes, authorized by state statute or local
ordinance, to local taxpayers and state reimbursement of any
property tax credits and exemptions;
- d. Services provided by local governments, including those
provided at the discretion of a local government and those
mandated by federal or state statutes and regulations;
- e. The role of property taxes in funding local government
services and the types of services currently funded by property
taxes;
- f. Alternative systems of property taxation, alternative
procedures for protesting property assessments, and various
methods of controlling property tax revenues and expenditures. In
conducting its review and anlysis, the committee shall study local
taxes from the standpoint of neutrality; competitiveness;
simplicity; stability; and equity, including maintenance of equity
among classes of taxpayers and among taxpayers within the same
class. The committee may hold public hearings to allow persons
and organizations to be heard."
The committee, cochaired by Iowa Senators Bryan Sievers and Rep.
Jim Kurtenbach, consists of two additional senators and two
additional representatives plus 12 public members.
Bob Willis' Proposal, as follows, was submitted December 14,
2004.
TAX REFORM FOR ECONOMIC DEVELOPMENT
The Property Taxation Review Committee has stated very reasonable
and clear objectives for a property tax system for the state of
Iowa.
I submit that the following 'Tax Shift Proposal' will best
satisfy those objectives:
- Cap structure assessments at Jan.1, 2004 rolls
- Annually reassess/tax non-exempt land at 100% value apart from
capital values
- Replace one-fifth of sales tax with state property levy
- Replace city minimum user-charges with city property levies
Basing taxes on market values of land as established by our free
market system will be more reliable, equitable, simple, and
responsive to changes in valuation and classification than any known
choice of tax base. The market, not legislatures, city councils or
county supervisors will set land values for Iowa's assessors. The
only help the market needs is less of deadweight taxes on
structures, purchases and incomes.
In researching the effect of tax shift proposals I have made
extensive use of the Polk County assessor's website for assessment
data by jurisdiction and also reports from the Iowa Department of
Revenue site. The opportunity to access similar data for most
counties in Iowa is open to all.
This plan will effectively support economic "growth" in
all of Iowa's 950 incorporated cities or better yet "economic
development" as defined by Dr. Pogue in "Criteria for Good
Proposals". Each city regardless of population and land area is
a potential commercial center and therefore extremely important to
both rural and urban residents, the farm sector and commerce. The
Tax Shift Proposal is designed to enhance the economy of every city
and county in Iowa. With hope for Iowa's Future
TAX REFORM FOR ECONOMIC DEVELOPMENT
- Tax relief for families and businesses
- Prod owners of under-utilized land to build housing, create
businesses
- Provide funds for education, public protection, public
infrastructure
Economics of taxation:
Although the share of Wealth to each production factor is Rent to
land, Wages to labor and Interest to capital, mere ownership of land
does not produce Wealth. Rent charged for use of land is a 'taking'
of Wealth earned in common by labor and capital. State and local
taxes on incomes, purchases and capital goods are also a "taking
of Wealth" from labor and capital. Labor and capital can flee
when taxed but land stays put. Iowa can encourage economic
development and cut taxes on families and business by taxing land, a
public revenue source as durable and predictable as Earth and Time.
TAX SHIFT PROPOSAL
Shift from taxes on wages and interest to taxes on 100% value of
land
- Cap each parcel's structure assessment at Jan.1, 2004 rolls
- Annually re-assess and tax all classes of non-agricultural land
at 100% value (2005)
- Replace one-fifth or more of state sales tax with state
property levy (2005)
- Permit cities to replace city minimum user-charges with
property levies (2005)
Capping structure assessments
- Exempts all new construction from property tax
- Shifts tax assessment from land and structures to land as the
primary value
- Protects existing structures from taxes on increase in
assessments
Annual revaluation/taxation of non-exempt land at 100% potential
value
Taxes billions in unrealized and on-going appreciation of land
values
Establishes uniform assessment and taxation of all classes of land
Taxing land at 100% ends rollback on land, shifts rollback to
structure values
Property levies replace state and local sales tax and
user-charges
- Tax on land capitalizes to lower prices for land
- Consumer tax cuts raise present value of land
- Lower land prices and tax cuts for consumers spur economic
development
Landowners not land buyers pay added tax on land
- Current owners cannot avoid higher tax by moving land to a
lower tax jurisdiction
- Idle lots produce no goods; have no consumers, generate no cash
rent to pay tax
- Buyers capitalize tax to lower price for land, pay land tax not
interest on mortgage
Economic development for Iowa's cities and towns
- High taxes on high value urban lots drive down land prices
- No taxes on new construction encourage owners to improve idle
properties
- Builders pay wages, buy materials to produce housing, stores
and factories
Spend more public revenues on education
- Spend less on development projects; rely on tax reform to drive
growth
- Spend less on aid to families by creating job and housing
opportunities
- Spend less to service new lands by making better use of
existing urban infrastructure
New opportunities for family farmers
- Rising tax, falling land prices, will encourage landlords to
sell some of their land
- Lower cost land and lower taxes on structures aid adding value
to farm products
- Economic development creates new local markets for value-added
products
Rural economic development
- Farm product manufacturers, processors and retailers improve
sites tax free
- Railroads and utilities upgrade services and structures tax
free
- Thriving cities and towns add to quality of rural living
SATISFY OBJECTIVES OF A TAX SYSTEM
Reliable and predictable
Land is a reliable and predictable public revenue tax base
unaffected by level of taxation. It appreciates in value from
investment of public revenues in infrastructure, schools and public
protection or from rising individual and private sector vitality and
general welfare. No amount of tax can remove land from the face of
the Earth. Structures as a tax base are depreciable capital
renewable only if freed of taxes.
Equitable
Land taxes are equitable. Unlike taxation of economically needed
physical capital which depends on constant human effort to build,
maintain and renew taxing the market value of limited land resources
legally platted and claimed for exclusive use by one owner does not
burden human effort.
Based on economic (market) value
Taxation based on economic value requires assessing and taxing
all classes of non-exempt land including utility and railroad lands
exclusive of capital values at 100% market value. Land sales driven
by reward of 100% exemption for new construction will set realistic
market values. Capped values of structures will roll down when
properly assessed at total parcel value less the higher land
assessment.
Simple and transparent to the taxpayer
What can be more simple and transparent than a single value of
land for each parcel, rollbacks phased out, and one consolidated
rate to replace current property tax, city minimum water bills, and
a portion of Iowa sales tax. Elimination of intrusive assessment of
structures and free distribution of cadastral maps of uniformly
assessed land values will build public confidence in the system.
Responsive to changes in valuation and classification
Uniform assessment of non-exempt land at market value will raise
city tax bases without raising total taxable values for most
parcels. For instance, Ankeny's $2 billion 100% 2004 combined land
and structure values of its 13,369 parcels, 5,212 total acres, could
rise by 20% or more with no increase for 10,918 of its parcels. Des
Moines Highland/Oak Park neighborhood's $459 million 100% values of
6,070 parcels, 1,166 acres, could rise by 5% with no increase for
5,571 parcels and Des Moines' downtown square mile $814 million 100%
values could rise by 8.4% with no increase for 172 of its 342
commercial and industrial class parcels. (see charts of current per
acre values vs per acre revaluations)
Foster economic development
Raising the tax on land to replace current user charges, property
taxes and sales taxes will prod owners of tens of thousands of
currently low use urban lots into selling or developing their
parcels for homes and production of goods. With less to pay in taxes
and user charges families and business will have more to spend on
goods. Lower prices for land for development, lower taxes on
families and business, affordable goods including housing and
reliable public services including schools are effective incentives
for growth in all of Iowa's 950 incorporated cities.