Transparency: Corporations see; we don’t

The transparency on tax breaks that we get in Iowa is merely a tease for the taxpayer, and for the folks who lobby the Legislature each year for their causes.

It’s not enough to really let Iowans compare the choices being made on the spending of public dollars.

Advocates for public-focused priorities push lawmakers to apply an adequate share of the state budget to real responsibilities: to educate children and young adults, care for those without the means to do so on their own, and to keep their natural environment clean and their streets safe.

They have to make a case, that a public investment is not only needed, but a responsible use of funds that benefits the greater good in Iowa.

Some in the lobby can afford to advocate differently. In the “We Got Ours” huddles of big-business advocates in the lobby, the high stakes business of protecting their special breaks, and expanding them, is often only evident in the results.

A Cedar Rapids Gazette story shows we can expect more of this for an expensive and unaccountable program long on the books, the Research Activities Credit, or RAC. The RAC, unlike most tax credits, often does not affect taxes at all, but is a straight and automatic subsidy provided to huge companies that pay little — and often nothing — in Iowa corporate income taxes. (Remember that next time you hear their  complaints about Iowa’s corporate tax rates.)

Much of the story offered weak defenses of this program by the state’s economic development director, Debi Durham, and a spokesperson for the biggest recipient of these subsidies. Neither of those two people offered a shred of evidence of a public return on the $60-plus million annual cost.

You see, we know the cost, because there is an annual report that lawmakers required for this program. (The lobby fought that requirement hard when it passed in 2009.) But what the report cannot show is how much of the subsidized research would have happened anyway.

RAC table ... large claims
The Research Activities Credit was set up to help small, entrepreneurial businesses get going. Instead, as official state reports have shown, very large companies with RAC claims above $500,000 account for between 80 and 90 percent of the cost every year.

In a deliberative budget process, everything is on the table — funds available, a clear and understandable process to apportion them, and the public benefit evident. But when $300 million in business credits are on autopilot, a large chunk of those funds is taken off the table before the rest of us even get to sit down.

Peter Fisher, IPP’s research director, notes in The Gazette story that the system gives all the advantages to the corporations.

“The corporations hold all the cards, which is why I think states and localities routinely spend way more than they need to,” Fisher told The Gazette. “It’s like playing poker where the other players know your hand but you don’t know theirs.”

To learn more about the RAC, see this Iowa Fiscal Partnership piece.

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Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership.

mikeowen@iowapoicyproject.org