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Posts tagged Iowa Fiscal Partnership

Tax credits: Just review them!

Posted November 11th, 2019 to Blog

Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be.

Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today.

The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018.

It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010.

Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024.

Basic RGB

While the tax credits themselves can be complicated, the fundamental issues are not.

  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.

As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before.

Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk.

The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits.

As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms.

Basic RGB

DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it.

In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need.

Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities.

Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel.

These are budget choices, ultimately. Why are legislators so afraid to even start on them?

MMike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

Tax credits: Just review them!

Posted November 11th, 2019 to Blog

Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be.

Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today.

The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018.

It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010.

Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024.

Basic RGB

While the tax credits themselves can be complicated, the fundamental issues are not.

  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.

As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before.

Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk.

The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits.

As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms.

Basic RGB

DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it.

In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need.

Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities.

Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel.

These are budget choices, ultimately. Why are legislators so afraid to even start on them?

MMike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

Tax credits: Just review them!

Posted November 11th, 2019 to Blog
Iowa lawmakers are making the issue of tax credit reform much more difficult than it needs to be. Put another way, consider tax credit reform as a different task: If we were setting out to design the first wheel, no cars would be on the road today. The latest foot-dragging came in late October, with the first meeting of a so-called “Tax Credit Review Committee,” which if not for the delay was a rare, promising nugget in an ill-conceived, expensive and inequitable income-tax cut bill in 2018. It was 10 years ago this fall that a scandal in the Iowa Film Tax Credit program led Governor Chet Culver to order a review of all state tax credits. A special panel of state department heads went through the credits and offered a set of reforms in January 2010. Virtually nothing was done in response. Tax credits, particularly those for business, have gone merrily along, rising to a projected $434 million for this budget year. Of that, about 7 out of every 10 dollars, or $314 million, is for businesses. State revenue analysts expect under current law for these numbers to be similar through FY2024. Basic RGB While the tax credits themselves can be complicated, the fundamental issues are not.
  • Tax credits are expensive.
  • Tax credits are regularly and extensively analyzed by the Department of Revenue, making plenty of information available.
  • Tax credits, like any spending of public money — and this is, in fact, spending ordered outside the budget process — demand accountability and a demonstration of a public benefit.
  • The Legislature creates these exceptions to our tax code; thus, it falls to the Legislature to review them to determine if they meet their expected purpose.
  • Even if a given credit may benefit the public, it must be shown to be a better public expenditure than something else, like education or health care services.
As it is, the 2020 legislative session will open without anything serious being done about a review ordered two years before. Truly it is easier not to do anything, to keep the gravy train running for the corporate lobbyists who benefit from these credits. But if you’re going to talk the talk about accountability in public spending, you should walk the walk. The low-hanging fruit that could start lawmakers on that path is the Research Activities Credit, or RAC. The RAC is a refundable credit, which means that if you have more credits than you owe in taxes, you get a check from the state for the balance. The annual cost of the RAC is about one-fifth of the cost of all business and family tax credits. As we have shown repeatedly — using data from an annual state report by the Department of Revenue — most of the RAC is paid as so-called “refunds,” not of taxes owed, but of tax credits not needed, and most of the benefit goes to very large firms. Basic RGB DOR evaluations — here and here as examples — provide evidence that is at best sketchy on whether the RAC promotes significant new research in the state. Companies that benefit from the RAC have to do the research anyway, just to be in business, or they wouldn’t bother with it. In the case of a small startup firm, a credit for some period of time might help the firm get established. For multinational corporations with hundreds of millions or billions in profit, good luck proving the need. Think of it this way: You could reduce or even eliminate the refundability of the RAC and not raise taxes on a single company or individual. But you’d have $40 million more available to put into public schools, or clean water projects, or any number of public priorities. Incoming House Speaker Pat Grassley said tax credit reform “is kind of a long process.” But if one never starts, one will never design that wheel. These are budget choices, ultimately. Why are legislators so afraid to even start on them? MMike Owen is executive director of the nonpartisan Iowa Policy Project. mikeowen@iowapolicyproject.org

Transparency: Corporations see; we don’t

Posted August 23rd, 2019 to Blog

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.

M

 

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

mikeowen@iowapoicyproject.org

Better target senior tax breaks

Posted June 19th, 2019 to Blog

Also see Iowa Fiscal Partnership news release

A new paper about state tax breaks for seniors shows one reason pre-2020 chatter about new tax breaks in Iowa is a bad idea.

Elizabeth McNichol of the Center on Budget and Policy Priorities (CBPP) notes in her report Wednesday that special income-tax breaks for seniors cost states 7 percent on average in 2013, a figure that will rise with growth in the population over 65.

As McNichol notes, “The senior tax breaks are poorly targeted because of their design: most states provide them regardless of the recipient’s income or savings.”

Put another way: Why should a senior retired couple pay less income tax than a working couple with similar or even less income? That can be the situation in Iowa, and — as McNichol notes — in many other states as well.

It is a point Peter Fisher and Charles Bruner have made in Iowa Fiscal Partnership (IFP) analysis over the years about Iowa’s special breaks for pension income, and as legislators phased out what had already been a limited tax on Social Security income.

Already, Iowa has freshly passed, costly and inequitable tax cuts scheduled to be phased in over the next few years, yet state legislators just last week were talking about bigger cuts in 2020. Given attempts to expand senior breaks in 2018, but not adopted in the final package, there is a danger that new income-tax cuts in 2020 could include the new senior breaks.

Among changes considered in 2018 was an expansion of Iowa’s already generous pension exclusion from $6,000 (single) and $12,000 (couple) to $10,000 and $20,000, respectively.

McNichol’s paper notes Iowa is one of 28 states that already completely exempts Social Security income from tax, and one of 26 that exempts at least some pension income.

Iowa, in short, is already quite generous to retirees. Also as McNichol notes, for some this might make sense — seniors at low incomes. But not all.

“A large share of these costly breaks go to higher-income seniors who need them the least. States should reduce this expense by better targeting relief to seniors with low incomes,” she wrote.

Bruner and Fisher noted this problem in their IFP paper last year:

Iowa has adopted a number of special provisions benefiting seniors. While the elderly and disabled property tax credit is available only for those with low income, the other tax preferences are not based on ability to pay:

•   All Social Security benefits are exempt from tax.

•   The first $6,000 in pension benefits per person ($12,000 per married couple) is exempt from tax.

•   Those age 65 or older receive an additional $20 personal credit.

•   While non-elderly taxpayers are exempt from tax on the first $9,000 of income, for those age 65 or older, the exemption rises to $24,000. For married couples, the threshold is $13,500 for the non-elderly, but $32,000 for seniors.

Iowa Fiscal Partnership analysis of tax policy and tax proposals is always grounded in fundamental principles of taxation, among them fairness: Similarly situated taxpayers should be treated similarly in tax policy.

What matters more to measure a taxpayer’s ability to pay is the amount of income, rather than its source. To tax income from wages at a higher rate than retirement income violates that principle.

Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership, a joint effort of IPP and the nonpartisan Child and Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

Tax-cutters’ lack of confidence

Posted June 13th, 2019 to Blog

In the confidence game of cutting taxes, where the world is promised to all but delivered mainly to the wealthy, Iowa’s tax-cutters are showing how little confidence they have in their own political talk.

State Senator Randy Feenstra of Hull is backing off his chairmanship of the Senate Ways and Means Committee as he runs for Congress in 2020, leaving the door open to Senator Jake Chapman of Adel.

Both have been big talkers painting the glories of tax cuts while running down Iowa’s competitive tax structure, and they have been successful using that political spin to make big changes — many of which are scheduled but yet to take effect.

Even then, they apparently will waste no time in rushing through new tax cuts, as evidenced by this story in the Cedar Rapids Gazette. There, Chapman is quoted that “he expected the Legislature would continue next session ‘to reform income taxes and reduce some of the highest tax rates in the country.’”

Before addressing the fundamental inaccuracy of the senator’s comment, one must wonder at least two things:

•   Are they not confident what they have passed already will not deliver what they promised?
•   Are they not confident they will retain political power through the Statehouse (the House is a much closer partisan split than the Senate) past the 2020 election?

Answering “yes” to either would explain their perceived need to rush more ill-advised tax policy into law.

In a very short span, Iowa lawmakers have eroded revenues with new tax giveaways to the wealthy and powerful, leaving scraps to working families in the middle and below. This has come with changes in personal income taxes, corporate income taxes and property taxes.

As Peter Fisher and Charles Bruner pointed out in an Iowa Fiscal Partnership analysis, he income-tax cuts passed in 2018 give almost half of the overall benefit to the highest-earning 2.5 percent of taxpayers — those making $250,000 or more.

 

 

 

 

 

Senator Chapman plays games with the term “tax rates” as if the highest tax rate is what anyone ever paid on all their income. It’s an illusion.

The highest rate — already reduced from 8.98 percent to 8.53 percent this year under the 2018 law — is a marginal rate; it is paid on only the highest share of income. The same taxpayer who pays the highest rate on one share of income also pays the lowest rate on the share of income where that rate applies.

In short, it’s a mix of rates — and they are applied to taxable income, which has many adjustments to lower that amount. Most notable among those is Iowa’s unusual provision to allow taxpayers to deduct federal income tax from state taxable income, which benefits higher-income people the most.

The tax-rate myth promoted by Senator Chapman is an old game, but the people who want to reduce public services and investments in the future keep playing it. And why not? They’re getting away with it.

The 2018 legislation includes ongoing rate cuts — if revenues reach high-enough levels. One reason to pass rate cuts again in 2020, before that deadline, is that you don’t expect the revenue targets to be met.

These changes have come at great cost to public services, including poor funding of public education from K-12 through community colleges and universities.

Looking ahead to the future of our state, and beyond the next election, would be the wisest course for Iowa tax policy. That is not what we’re getting.

Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership, a joint effort of IPP and the nonpartisan Child and Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

Transparent realities of bad law

Posted May 24th, 2019 to Blog
curtains-tighterIn the closing nights of the 2019 session, while most Iowans slept, the Iowa Legislature enacted substantial changes to the way city and county governments fund public services. There was no chance for public input, or for analysis by legislative staff. With no apparent sense of irony, the bill’s supporters argued the purpose was to increase transparency for voters. On Thursday, Governor Reynolds signed the bill out of the public eye, issuing only a one-sentence statement repeating the same claims and ignoring the real impacts. In this one bill, the Legislature managed to enshrine minority rule, punish public-sector workers (yet again), penalize economic growth, and hamstring cities and counties recovering from a natural disaster. The bill will limit the growth of property taxes levied by cities and counties to 2 percent each year. Local elected officials will need a two-thirds vote to do more, if they find that their constituents’ needs demand it. So much for majority rule and local democracy. The bill threatens city services and the local public workers who provide them. Employee benefits, such as health insurance and contributions to pension funds, until now could be financed by a special tax rate, in recognition that the rising cost of health insurance and fixed pension contributions are outside city or county control. These costs have been increasing more than 2 percent annually, often much more. But now they go under that arbitrary 2 percent cap. There was much attention — deservedly so — to how various versions of the bill would affect IPERS pension benefits. This ultimately served to distract many from much broader impacts. When pension contributions and health insurance premiums increase more than 2 percent, the city or county may have to reduce services, cut benefits, or lay off workers to keep overall tax growth under the cap. The bill pits taxpayers against the people who plow their streets, protect their homes, build roads, or maintain parks and libraries. When services are cut, public employees can be portrayed as the scapegoats, which will be convenient to the forces that have threatened public employee pensions. Turning Iowa’s secure pension programs over to less-secure, privately run for-profit administrators remains a goal for those forces. The new bill also penalizes local governments for pursuing growth. A last-minute change in the legislation puts revenue from new construction under the 2 percent cap. As a result, cities and counties experiencing significant growth may be forced to cut rates year after year and will find themselves without the revenue to support the growth if they can’t muster the supermajority. For example, a city growing at 4 percent per year would face a revenue penalty of 17 percent within five years. Another last-minute change left in place existing levy limits, which would have been abolished under both earlier bills. So now cities and counties face two limits, one on rates and another on revenue growth. The combination could be devastating in some circumstances. Consider a flood, or a recession causing a loss of property value. The rate cap forces revenues to decline for any city or county at or near the rate limit, which includes the vast majority of localities. Then, as the recession ends or the city rebuilds, the revenue cap could now undermine recovery. The reduced revenue becomes the new starting point, potentially leaving a city or county unable to restore revenues even to the previous level because of the 2 percent limit on revenue increases. And this just at a time when extraordinary measures are needed to help the recovery. One has to wonder if more transparency in the process might have helped legislators find a better outcome — or at least helped their constituents to argue for one. Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. Contact: pfisher@iowapolicyproject.org Editor’s Note: This post updates and expands upon a previous post about this legislation, prior to the governor’s signing of the bill.

Questions — before the answer comes

Posted May 9th, 2019 to Blog

As Governor Kim Reynolds mulls SF634, the property tax limitation bill, there are many questions anyone would have to consider — questions that did not get an adequate hearing before the rush to passage of a backroom-built bill in the waning hours of the 2019 Iowa legislative session.

1)   Why an arbitrary 2 percent limit on new tax revenues? No matter what increasing costs an individual community may face to provide public services, the bill limits growth in revenues to 2 percent.

2)   Why penalize growth? No matter how much property valuation grows in good times, the revenue limits would restrict the public services needed to service a growing community.

3)   Why penalize recovery from disaster? Reduced property value under tax levy limits will reduce revenue for critical public services in recovery.

4)   Why take local tax decisions out of the hands of locally elected officials? It’s never easy for local officials to raise taxes — taxes they also pay — but the bill substitutes the arbitrary will of state legislators for the judgment of board and council members the voters choose to make local decisions.

5)   Why hinder jobs, encouraging local cuts in public service jobs by putting special levies for employee benefits such as pensions under the new, artificial and arbitrary general revenue cap?

6)   Why encourage a reduction of health benefits for local public service employees by putting those costs under an arbitrary revenue cap?

7)   Why should a “no” vote count twice as much as a “yes” vote? That is the effect of the two-thirds super majority required to go above legislative mandated 2 percent revenue growth. Local officials would have to reach that threshold in many cases with actually more than two-thirds approval: four “yes” votes on a five-member board or council, five if there are seven members — and that is the case even if revenues exceeding 2 percent growth would mean a decrease in tax rates!

8)   Why reward backroom deals in the name of transparency? There was no opportunity for a public debate on this deal hatched in the waning hours of the legislative session. There was no transparency in the process.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City.

mikeowen@iowapolicyproject.org

 

Be sure to see this Iowa Fiscal Partnership backgrounder by Peter Fisher of the Iowa Policy Project for more information about the actual property tax trends in the state — trends ignored by proponents of the legislation who offered a false narrative about this issue.

Also see this blog by Peter Fisher.

Perspective for the common good on Tax Day

Posted April 15th, 2019 to Blog
It is so tempting, as we are seeing on social media over the last several days, to talk about filing your taxes and the fact that you (1) paid more or (2) paid less.
Is that really what matters? Let’s take a step back and look at the big picture — the common good. There are three main points to remember:
1) First, what are taxes for? Schools. Roads. National defense. Health care. Fairness and protection in the workplace. Clean air. Clean water. Recreational opportunities. Libraries. There are more examples you may put out front. But in any case, none of those services funded now by taxpayers will be provided without taxes. They will not be provided by the private sector, at least on any scale that provides access to all Americans.
Go ahead. Chart a road to opportunity for all that does not include taxes. You cannot do it. It is integral to the mission, which is why tax reform is an essential stop we identify on our Roadmap for Opportunity. Unfortunately, Iowans have not received tax reform, but a doubling down on bad tax policy trends of the last 20 or 30 years.
2) Our Iowa tax code is inequitable. The rich pay less as a share of their income than people who live paycheck to paycheck. It was already a long-term trend in Iowa (and in many states) and it was worsened by the 2018 tax overhaul. Our state and local tax system is upside down.
3) Cleaning up and restoring balance to our tax code would better assure public money is going to public purposes, rather than subsidizing tax breaks and loopholes for those most politically well-connected. As we have shown: •     Tax credits for business already cost more than $300 million a year. •     Tax loopholes for multistate and multinational corporations already cost between $60 million and $100 million. On Tax Day — and every day — we must ask whether those choices are the best use of public money, when we know education, public safety and environmental quality are being compromised by short-sighted budget decisions in Des Moines. Mike Owen is executive director of the nonpartisan Iowa Policy Project. mikeowen@iowapolicyproject.org

Restoring equity in tax policy — Plug tax loopholes

Posted November 15th, 2018 to Blog

Through the years in Iowa, very few lawmakers have had the courage to take on an utter abomination in our corporate tax system: tax loopholes.

It is one thing to expressly pass a tax preference — a credit, exemption or deduction — with a specific purpose, clearly defined for all taxpayers to see and reviewed for its effectiveness. (Iowa does not provide such accountability with many such preferences, but that is for another post.)

It is quite another thing, however, to see weaknesses in your tax code exposed and exploited by large companies, and to leave those holes open for routine abuse. Welcome to Iowa.

A new report by the Center on Budget and Policy Priorities discusses this issue as part of overarching tax policy that states can use to advance racial equity and sustain services responsibly. From the report:

States can nullify a variety of tax avoidance strategies employed by large multistate corporations by adopting a reform known as “combined reporting,” which treats a parent company and its subsidiaries as one entity for state income tax purposes, thereby minimizing companies’ ability to shift income earned in a state to other states that are tax havens (like Delaware and Nevada).

The figure below shows Iowa is out of step with the majority of states on this issue. All but one of our neighboring states has a corporate income tax, and all but one of those states has combined reporting to stop companies from avoiding taxes that were originally intended by the tax code to be collected.

The Iowa Policy Project and Iowa Fiscal Partnership have been encouraging Iowans to look at this issue for many years. We made it part of our 2018 Tax Policy Kit — explaining here how Iowa could save itself tens of millions of dollars that are squandered to companies that effectively set their own tax policy. The Iowa Taxpayers Association consistently defends this break that not only burdens our state, but tilts the playing field to big, multistate corporations and against Iowa-based, Iowa-focused businesses.

Two governors, Tom Vilsack and Chet Culver, at times proposed adoption of combined reporting, but the issue — while getting some attention at the committee level — has not reached a floor vote in the House or Senate.

Iowa’s tax code needs to be fair to all residents. It needs to generate revenue to sustain services that are important to all residents, from education to water quality to law enforcement to health care. To allow corporations to set their own rules by exploiting weaknesses in the tax code defies these oft-stated Iowa values of fairness and accountability.

Posted by Mike Owen, Executive Director of the Iowa Policy Project.

mikeowen@iowapolicyproject.org