When you put your money in, do you see where it goes?
It’s an important question for taxpayers, and it’s one the Iowa General Assembly may address further this spring.
The so-called “Research Activities Credit,” or RAC, has become an annual drain on the state Treasury of $30-40 million and is projected to reach past $60 million in a few years. But the biggest cost is not simply tax revenues lost to a credit against taxes owed. The biggest cost of the RAC is in its poorly named “refund” program. If a company can claim a credit larger than its taxes owed, it gets what’s called a “refund” — for taxes it never had to pay.
These “refunds” averaged about 92 percent of claims from 2000-05, and in 2005 averaged $3 million per recipient. That is money that never has to go through the regular budget process, scrutinized by legislative committees and weighed against the state’s priorities. If it were a grant, or a regular budget item, you would see where that money goes. But since it’s rewarded through the tax system, you don’t. The companies receive secret checks.
That’s business as usual in Iowa, where corporate giveaways are literally out of control.
Maybe this will start to change. A new law passed last year could be a critical first step toward transparency of subsidies to private corporations. Recipients of RAC claims above $500,000 will be named, with amounts received, in an upcoming report from the Department of Revenue.
You’ll be able to see where at least some of the money is going, and count your quarters — a half-million dollars at a time!
Posted by Mike Owen, Assistant Director