Both an elephant and a gorilla are in the small rooms where citizens are crowded out of the discussion on massive, radical tax policy changes in Iowa.
The elephant is an image of Iowa taxes on business concocted by corporate-funded lobbyists and organizations that make a mockery of the concept of independent research and sensible analysis. Most people know it’s nonsense and political spin and if they don’t, they should — rather than repeating it.
So, instead of the nonsense, look at these two charts, with data drawn from annual reports by national business consulting organizations, that offer a look at Iowa’s state and local taxes on business. Both are quite simple and sensible calculations, of taxes paid by businesses. They show how taxes differ across the states as a share of the states’ economies (Ernst & Young), or as a share of pre-tax profits (Anderson Economic Group).
Note: State and local taxes together are the key with what legislators are doing, because state law effectively governs all state and local tax policy.
As you can see, Iowa ranks only 28th highest in one measure and 29th highest on the other — and in both cases is part of a very large pack comprising the majority of states. In reality, state and local taxes on business really do not differ much.
If the rankings really mattered, Iowa lawmakers and the Governor would be boasting about those real measures, using them to attract business. As IPPs Peter Fisher describes on our GradingStates.org website, other things matter more than taxes. Meanwhile, “business climate” rankings matter little.
On that same IPP-sponsored site, you can learn about the birth of the elephant — a common reference is to Iowa’s ranking of 40th best, which is merely an arcane and bizarre mix of factors that the corporate-supported Tax Foundation cooks into a nonsensical business tax climate index.
Now for the gorilla. It’s one you’ve heard from the Iowa Policy Project and Iowa Fiscal Partnership for many years: massive spending on tax credits for corporations with little or no accountability (see chart), and Iowa lawmakers longtime refusal to close corporate tax loopholes that could gain the state $60 to $100 million a year.
Now, the Governor, unlike the Senate leaders, says we cannot afford corporate tax “reform” this year, but also says we need to wait on tax-credit reform. She says we need to review the credits first.
Likewise, the Senate plan calls for a review of tax credits during the interim between this session and next, while making several immediate changes without any explanation before the new review.
The common thread: Both the Governor and legislative leaders recognize there is outrage about reckless tax credit spending when actual needs are held back. They pat that gorilla on the head, say, “We’ll get to you soon,” and if history is a guide, they never will — not on the credits already shown to be most in need of reform.
These credits have been reviewed — and reviewed, and reviewed — by the nonpartisan staff of the Department of Revenue, which puts all the reports on its website for all to see. (Here and here.) Yet, the Governor and the Senate leadership demand a new review of tax credits.
Interestingly, no such review is demanded for the Senate tax plan itself, or was provided upon the introduction of the Governor’s plan, even though both would drastically alter our tax system. No data, little public input, ram it through, worry later about the consequences (or how to spin it).
In the end the question for our public leaders is whether they are focused on how we can provide essential public services better. You cannot provide them without revenue, and the Governor’s plan reduces and the Senate plan would gut revenues.
You can bet the folks running the kinds of businesses we want in Iowa know the difference between tax cuts that actually mean little to their business, and the value of smart policy that supports well-educated workers and a good quality of life for themselves, their families and their workers.
Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership. firstname.lastname@example.org
Full reports from national business consultants:
Ernst & Young, August 2017: Total state and local business taxes — state-by-state estimates for fiscal year 2016, page 12, Table 4, column 7 (TEBTR, taxes as a percent of gross state product).
Anderson Economic Group, Apri 2017: 2017 State Business Tax Burden Rankings, page 19, Exhibit III. State and local taxes paid by business, share of pre-tax gross operating surplus, 2015.
“The Tax Foundation’s Waste of Time Index,” Peter Fisher, IowaPolicyPoints.org, October 17, 2017