Reform of business tax credits in Iowa is long overdue, so the natural instinct is to welcome with open arms the interest of state legislators in a review of Iowa’s runaway spending on tax credits.
Yet, optimism must be tempered. There is a great opportunity; there also are pitfalls.
Fooled us once
Iowa’s last look at tax-credit reform came in the wake of scandal in its film industry tax credit program. Despite a strong report with potentially game-changing recommendations from a special task force of state agency heads in 2010, not much came from the Legislature. As we noted then, legislators acted with fierce caution that no doubt sent the business lobbyists off to celebrate.
That time, the review resulted from a scandal of law and ethics. What remained, and remains today, is a scandal of fiscal ignorance and arrogance. Iowa’s spending on business tax breaks has soared in recent years, and this budget choice has been a contributing factor to the stagnant or declining commitment to public responsibilities: education, the environment, health and public safety.
Fool us twice?
Such skepticism should be understandable not only with the anti-bargaining and anti-worker legislation Iowans have seen in this session, but with comments by legislators. In one shot across the bow, Rep. Pat Grassley stressed legislators would put everything on the table, including the Earned Income Tax Credit (EITC), which benefits low- and moderate-income Iowans.
Past study already has shown that, unlike Iowa’s most lucrative business tax credit, the Research Activities Credit:
• the EITC has obvious benefits to the economy and Iowa working families.
• the EITC benefits only people who need the help, where RAC is unlimited and in fact benefits some of the most profitable companies in the country.
• the EITC benefits people when Iowa’s regressive tax system is otherwise stacked against them, where the RAC benefits those who already do well by Iowa’s tax code.
Already we know that the individual state and local tax system in Iowa — all effectively governed by state law — demands that people at the bottom of the income scale (actually the bottom 80 percent) on average pay 10 percent of their income in tax. At the same time, the wealthiest and most well-connected pay much less — 6 percent at the very top.
Already we know that Iowa’s total state and local taxes on business — again, all effectively governed by state law — are below the national average and by one national business consultant’s measure are among the lowest in the nation.
In a nutshell, heading into this discussion, beware the false equivalencies and more of the same business-lobby spin that has produced the unaccountable and unfair system that makes it difficult to fund critical public services.
And be sure we do not lose some important pieces now in place, including the transparency we have on the RAC with annual reports from the Department of Revenue.
We have called for reform and better oversight for years. If legislators are serious about it, this could be a good thing. If it is merely cover to further burden the poor, reduce transparency, or heap new breaks on corporations that do not pay their fair share, it could be one more step in Iowa’s low-road march to the bottom.