Common good vs. common blame

When leaders defy a “common good” standard in decisions, the ultimate price becomes a “common blame,” because government actions represent us all, even if they do not serve us all.

The Chris Godfrey case is only the latest example of a state leadership that — with no meaningful check on its authority — will do whatever it wants regardless of the consequences. They can, so they will.

And, for now, a jury has given the taxpayers of Iowa the consequences: a $1.5 million judgment against the state because of then-Governor Terry Branstad’s discrimination against a gay state official. Godfrey was state workers’ compensation commissioner when Branstad pressured him to resign, then cut his pay when Godfrey refused.

Branstad maintains the decision had nothing to do with Godfrey being gay. A jury disagreed. Either way, the totality of the case is disturbing.

When our state leaders defy a “common good” standard in making decisions, the ultimate pushback or price becomes a “common blame,” because the government actions represent us all, even if they do not serve us all.

We already see it in the issues surrounding Iowa’s poor water quality and the refusal of Iowa’s leaders to use public policy effectively to correct it. The voluntary Nutrient Reduction Strategy is not a strategy at all, but rather our imaginary friend who assures us we’ll do the right thing. Or our farmers will. Someday. But no one will make either us, or farmers, do the right thing unless already inclined to do so.

We see it when exorbitant tax breaks or subsidies go to corporations without a discernible return to the public, while services that benefit not only the corporations but all Iowans — such as a strong PK-12 and post-secondary education system — are held back or even cut.

And we see it here, in the Godfrey case. As the Cedar Rapids Gazette’s Todd Dorman pointed out in a column today:

The jury found Branstad was in the wrong. Now, of course, if the verdict stands, it will be you and I who likely pay the freight. Maybe those captains of industry Branstad tried so hard to please by bullying Godfrey could pass the hat.
And of course those “captains of industry” would have to pass the hat if they are to contribute, because we don’t tax them enough. We keep giving away subsidies and tax breaks like candy.

But this is about more than taxes. As our senior research consultant, Colin Gordon, noted in a blog yesterday, Branstad’s own defense — effectively that he did not discriminate against Godfrey but wanted him out because of what he had heard from business owners — is a problem in itself. It is something that Iowa’s leaders need to recognize as a problem and if they cannot, the voters need to. The state is not here as a service center for corporations, but to serve all Iowans. When individual Iowans are injured on the job, they need someone enforcing the law, as Godfrey was doing.

By his own admission, Governor Branstad was taking his cues from his business cronies. And if you read the transcript of his deposition in the case under questioning by attorney Roxanne Conlin, you can see he didn’t investigate beyond the anecdotal whining he was hearing from selected business people.

And Branstad won’t be held accountable for it. The people of Iowa will be, in our common blame.

Mike Owen is executive director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

Hyperbole Alert: The drumbeat to cut corporate taxes in Iowa

Want to talk reform? Then recognize the real problems — we receive less in corporate tax than we used to, and don’t collect a lot because of the swiss-cheese nature of our tax code.

Mike Owen
Mike Owen

TWELVE PERCENT!

The figure practically screams at you, even when it’s not in all caps, when the conversation comes to corporate tax rates in Iowa.

Here’s the thing: It’s not a real number. Not really.

That is what is known as Iowa’s “top marginal rate” on corporate income tax. And it’s not a real number because it simply does not — cannot — reflect what a business pays on all its profits. Yet that is the implication when people (especially politicians) or corporations complain about it.

A top Iowa columnist, Todd Dorman of the Cedar Rapids Gazette, this week discussed the political battles over Iowa’s latest gigantic subsidies to Egyptian fertilizer company Orascom. In his piece he expressed a note of concern about the hyperbole in those battles. Then, he turned the discussion to Governor Branstad’s desire for cuts in corporate income taxes.

It is in that discussion where the hyperbole typically has been the strongest in Iowa. We are often told — as Dorman noted — that Iowa’s top corporate income tax rate is the nation’s highest. Note the emphasis added on “top.” More on that in a moment. Dorman also noted, accurately, that Iowa “has four brackets and a tangle of special interest credits.”

Because of the latter, any serious concern for our corporate friends should evaporate. Because they’re really being taken care of quite nicely, thank you, by their friends in the General Assembly and the Governor’s Office.

Now, about that “top rate.” It applies only to Iowa-taxable corporate profits above $250,000. Iowa doesn’t tax any profits from sales outside the state, so the rate doesn’t apply at all there, which for many businesses is a significant share of profits. For all taxable profits below $250,000, rates are lower — 6 percent on the first $25,000, 8 percent on the next $75,000 and 10 percent on the next $150,000.

Before these rates kick in, the business gets to deduct half its federal income tax from taxable income, and may have other deductions or ways to shelter income from state tax.

Then, after the rates are computed and the taxes determined, the tax credits enter the picture — and state revenues exit. The state just expanded the potential for those credits by $50 million, raising the cap on a select group of credits. In the case of the Research Activities Credit, these credits not only erase all tax liability, but offer state checks for the remaining amount of the credit. Through that program in 2012, Iowa paid out almost $33 million to 130 firms that paid no income tax, because those companies had more credits than tax liability.

And you can bet the corporate execs and their accountants fully understand all these nooks and crannies in our tax code. But if you want to give them a free million or so, they’ll take it. They are smart folks, and they have proven themselves to be more skilled negotiators than Iowa’s economic development moguls.

Want to talk reform? Then recognize the real problems — that we receive less in corporate tax than we used to, and that a lot of corporate tax is not collected because of the swiss-cheese nature of our tax code. That gives us all something to talk about.

Just be ready for the hyperbole from those who don’t want to change that part of our system.

Posted by Mike Owen, Executive Director


For more information about Iowa business taxes, see these Iowa Fiscal Partnership reports:
— “Reducing Iowa Commercial Property Taxes,” by Heather Milway and Peter Fisher, April 24, 2013.
— “Amid Plans to Relax Limits, Business Tax Credits Grow,” by Heather Gibney, April 16, 2013.
— “Corporate Taxes and State Economic Growth,” by Peter Fisher, revised April 2013.
— “A $40 Million Budget Hole: Persistent and Growing,” IFP backgrounder, February 25, 2013.
— “Tax Credit Reform Glass Half-Full? Maybe Some Moisture,” IFP backgrounder, revised March 23, 2010.
— “Single Factor to Consider,” IFP backgrounder, April 2, 2008.

Smokey and the Jobs

We’re not going to say it can’t be done. But we’ve got a long way to go, and a short time to get there.

The controversy over speeding by the Governor’s SUV prompted one columnist [1] to tinker with the lyrics for the theme song from Smokey and the Bandit (the Burt Reynolds film in which a couple of lead-footed drivers set out on a multistate beer run through the South beating the law at every turn): “Gov. Terry Branstad’s SUV was apparently westbound and down, loaded up and truckin.’”

This naturally leads to a discussion about the Governor’s job goals, because of the next lines from the same song: “We gonna do what they say can’t be done. We’ve got a long way to go, and a short time to get there….”

Governor Branstad set out to produce 200,000 jobs in five years, a lofty goal and one all Iowans should want to see happen. But to do that, we need to average a net increase of about 3,300 jobs a month for that whole span. A pace like that has never come easily in Iowa. In the last two decades we have reached it only once, in 1994, over an entire calendar year.

And, through the first 28 months of his term, tracking we do for IPP’s monthly JobWatch shows we have a net gain of 48,000 jobs — a pace of 1,700 new jobs per month. That leaves 32 months at a pace of 4,800 jobs per month to gain the remaining 152,000. So the Governor has set an aggressive goal for one year, let alone five.

As the graph below indicates, the Iowa economy has just about caught up with both the state’s peak level of jobs and peak before the 2007-09 recession, while falling well short not only of the Governor’s goal but also the number of jobs needed to keep up with population growth.

Basic RGB

Another 152,000 jobs over 32 months?

We’re not going to say it can’t be done. But we’ve got a long way to go, and a short time to get there.

Posted by Mike Owen, Executive Director

[1] Todd Dorman, The Gazette, Cedar Rapids, “Smokey and the Branstad,” updated July 3, 2013 — http://thegazette.com/2013/07/03/smokey-and-the-branstad/