A good place for the new governor to start is establishing transparency and accountability with reforms of tax credits and other tax expenditures.
Congratulations to Governor Terry Branstad on his nomination as ambassador to China and to Lieutenant Governor Kim Reynolds for her coming role as Governor of our state.
This is a tremendous opportunity for the new Governor to start marking her clean slate with a productive and fair agenda that advances opportunity for children and families, protects the vulnerable and enhances our quality-of-life assets of clean air, clean water, and cultural enrichment.
A good place to start is establishing a new regime of transparency and accountability in state spending with a reform agenda for tax credits and other tax expenditures — something she may embrace as a former county treasurer. Important decisions are being made in the shadows in the Iowa State Capitol. Our incoming Governor has an opportunity to bring them out into the open.
With this type of reform, we may find there are in fact adequate revenues to again cultivate Iowans’ long-held commitments to education, to our safety net, to our environment, and to fairness and safety in the workplace.
At the Iowa Policy Project, we welcome inquiries from the new Governor and her staff about our research. May they — like Iowans around the state — find it to be a credible and reliable resource to better understand our public policy choices.
Posted by Mike Owen, Executive Director of the Iowa Policy Project
The costs just keep rising for the Research Activities Credit and many other business tax credits, with virtually no accountability.
This week we will get a taste of what transparency could look like for the hundreds of millions of dollars that Iowa spends through the tax code.
We’ll only get a taste, to be sure, as what we’ll see won’t be enough. But, thanks to a law that passed against difficult and powerful lobbying interests in 2009, we do get that taste — a glimpse into who benefits from Iowa’s largest and most generous business tax credit.
It’s the Research Activities Credit (RAC), a costly little gem that has provided big companies some big checks from the state — in some cases even when they pay nothing in income tax. The Iowa Department of Revenue projects the cost of this credit to grow by more than half in the next five years, from $52.4 million to $80.3 million.
Could this be a shrewd investment for the state? Not likely, or at least that must be the presumption, as the beneficiaries have neither shown nor had to show the state’s real taxpayers what they get in return for the giveaway. Click here for a look at the recent history on this credit.
The economic development gurus defend the RAC with little more than a “trust us” argument, which of course is not a strong enough argument for public schools, or state universities, or community colleges, or cities with law enforcement and infrastructure challenges, or counties with mental health services and emergency response challenges.
And the costs just keep rising for the RAC and many other business tax credits, with virtually no public accountability. What little that is available will come in the Department of Revenue report that is due yet this week. It will show the total amount of claims, the total amount paid as checks to companies that do not pay state income tax, and will identify companies with over half-a-million dollars in claims. Stay tuned.
Despite the PIRG grade, problems with Iowa’s tax spending transparency tell more about Iowa.
You can’t fix problems you can’t find. That’s why transparency is so important in public policy and especially spending through the tax code.
You would never find some of this information just going to the Iowa Economic Development Authority website — you have to know where to look. And even then, there are limitations on what is available from the state for its citizens to see.
The Iowa Policy Project and Iowa Fiscal Partnership have long argued for greater transparency with regard to the state’s expenditures on economic development through the tax code. We are happy to see a new report from the Iowa Public Interest Research Group that brings attention to this issue, properly including business tax credits and other tax expenditures among the categories of state spending that citizens have a right to know about.
But it’s very important to look at the deficiencies that remain in Iowa. In our view, those problems tell far more about the state’s interest in transparency than the items that are given a favorable rating by PIRG.
While the PIRG report gives Iowa credit for having a website that allows a citizen to find economic development subsidies awarded by company name (including the amount, the jobs promised, the jobs created, and the location), two problems in particular should be addressed in the future.
First, only tax credits that must be awarded are listed; similar information should be available for all economic development tax credits, including those that are automatic.
Second, the database of subsidies is buried deep in the website of the Iowa Economic Development Authority (for those interested it is here: http://www.iowaeconomicdevelopment.com/annualrpt/?cmd=default&rptyear=2011). It’s hard for the public to find. A link to this database should be posted on the state’s DataShare website, where only aggregate information on tax credits is available.
The Legislature did pass a notable transparency improvement in 2009 that requires the state to identify by name the recipients of Research Activities Credits in excess of $500,000. The bill failed, however, to require identification of how much of a company’s credit was in the form of a refund check. Taxpayers have a right to know how much of their tax dollars are going to subsidize corporations that are paying no state income tax.
It should be clear by now that the disclosure of company-specific subsidy information does no harm to the company or to the state’s economic development efforts; there is no excuse not to make all of our business tax subsidies transparent.