Tax cuts can have positive and negative effects. While they can provide relief to taxpayers and stimulate economic growth, they can also lead to revenue shortfalls, underfunding of essential services and programs, and an increasing wealth gap. In Iowa, the consequences of a significant commercial property tax cut two years ago have become a reality. The state is having difficulty funding its most critical basic services, such as education, despite the economy rebounding and state revenues projected to rise almost 5 percent next year. This is because the majority of the increased revenue is being given away to commercial property owners with no public benefit. The commercial property tax cut will result in an estimated $277 million hit to the state budget next fiscal year, which is more than double this year’s cost. The remaining amount is too little to cover even the normal increases in the cost of providing public services due to inflation.
The tax cuts will have far-reaching consequences, including increased class sizes, program reductions, outdated textbooks, salary cuts, and reduced state services. The child care assistance program will continue to penalize families for earning more. The tax cuts have created a problem of priorities as Iowa keeps underfunding services for average families, such as education, health, work supports, and natural resources, to finance massive tax reductions to businesses that don’t need it.
According to David Osterberg, a professor of occupational and environmental health at the University of Iowa and a former state legislator, it is time to admit that the tax cuts enacted in 2013 were excessive and are causing long-term damage to the state. He believes that the $50 million increase in the business property tax credit portion of those tax cuts scheduled for next year should be delayed or eliminated. Furthermore, there should be a moratorium on any further tax cuts or tax credits. All business tax credits should be subject to effective caps and sunsets to force a serious evaluation.