Pay Attention to Tax Breaks Behind Curtain

Taxpayers are protected by more transparency on tax-credit spending for businesses that don’t pay taxes.

Iowa took a couple of positive steps — small but important steps — in 2009 to assure greater accountability in economic development subsidies.

While it is important to note those steps, it also is important to note well-funded forces already are using baseless arguments to undermine them in hopes of overturning the strides made in 2009. Iowans not only should reject these efforts, but they should expect improvements in 2010 to build upon 2009.

What went right? Lawmakers at the end of the legislative session approved greater transparency on tax credits, specifically the research activities credit (RAC) that sends multimillion-dollar secret checks to companies that do not pay income tax in Iowa. Under legislation passed in the closing hours of the session, recipients of RAC benefits over $500,000 will be identified publicly so Iowans and their legislators can begin to evaluate whether these tax expenditures are benefiting the state.

In addition, legislators approved a cap of $185 million on certain tax credits, including a “supplemental” RAC program that allows a doubling of the regular RAC credit.

There is much more the Iowa Legislature and Governor Culver should do, but those two steps in 2009 may help show Iowa residents the value of future bigger steps. Part of that making that case involves vigilant attention to false claims, distortion and spin against the kind of transparency that taxpayers deserve.

Victor Elias of the Iowa Fiscal Partnership wrote a cogent summary knocking down the bogus claims in a letter to the editor published in the Des Moines Register.

Long and short: Despite contrary claims by business advocates, businesses will be able to keep all trade secrets private — but their taxpayer investors also will be protected by being let in on the secret of how much money they’re tapping from the Treasury. No information about the nature of research being conducted with public subsidies will be disclosed as a result of the new legislation.

As Elias writes:

The only secret made public by this legislation is finding out the largest corporate recipients of $43.8 million in research-activities credits granted in 2006, $34.1 million of which were checks from the state general fund to companies that paid no Iowa income tax that year.

There is no valid argument to keep that kind of information secret from those who are paying the bills, or from those who set our state’s spending priorities each year during the budget process.

Posted by Mike Owen, Assistant Director

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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