Iowa Policy Points

Oversight on the overseers of tax credits

You might have heard about a big meeting at the State Capitol today.
No, not that one, about whose portrait will hang in the Iowa House and Senate behind the presiding officer.
The meetings where there’s always some mystery are the annual reviews of selected tax credits. Only a few credits are reviewed each year by a panel of legislators. One meeting was in November; the other is today.
One tax giveaway — er, tax credit — on the agenda for today is the Research Activities Credit, or RAC.
No such review since these sessions started has produced meaningful reform, but the exercise does put information on the table and does put a spotlight on spending choices being made outside the budget process.
What we already know from previous evaluations and annual reports about the RAC is that it is costly — over $50 million a year — and that routinely at least two-thirds of the cost (and usually over four-fifths) goes to companies as so-called “refunds.” These are not refunds of taxes owed, but of tax credits the companies didn’t need because they owe so little, or no, corporate income tax.
Remember that when you hear the Iowa Taxpayers Association and others bleating about Iowa’s corporate taxes, which are actually low.
For perspective on the RAC, the $42 million given away in tax credit refunds under this program in 2015 would have paid for about 1 percent more in school aid, at the same time schools were told we didn’t have the money for it. Of course we did. Our legislators just chose to give it away, mainly to huge, profitable corporations.
In Room 103 of the State Capitol, 1:15 p.m., the public and legislators can hear from the Department of Revenue about the Research Activities Credit. And the session that follows at 2:15 on the Earned Income Tax Credit may be worth listening to as well, for contrast, as the EITC is a demonstrated boost to the economy while the RAC has never been demonstrated to be more than a drain on revenue.
You never know what legislators at the table will have to say about these issues, but we may get some insights.
As for that other meeting, we all now how it will come out.
Posted by Mike Owen
Executive Director of the Iowa Policy Project
Project Director of the Iowa Fiscal Partnership
mikeowen@iowapolicyproject.org