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Posts tagged tax breaks

Does Iowa know when to walk away?

Posted September 5th, 2012 to Blog
Peter Fisher

Peter Fisher

There’s Texas Hold ’Em,” and then there’s “Iowa Fold ’Em.”

Wouldn’t you just love to play poker against the folks who run this state?

They never call a bluff. Companies come calling with demands for tax breaks and big checks, or they’ll build somewhere else. And Iowa just happily falls in line with the demands. You can almost hear Kenny Rogers singing in the background: “Know when to walk away, and know when to run.”

The latest: Today the board of the Iowa Economic Development Authority (IEDA) is scheduled to consider sweetening its already generous offer to Orascom — $35 million to build a $1.3 billion fertilizer plant in Lee County — to about $110 million with a slew of new tax credits. As The Des Moines Register points out today, that’s $110 million for 165 “permanent” jobs paying on average $48,000 a year, plus construction jobs that will be gone when the project is finished.

The state tax credits are in addition to the enormous benefit the state is providing by allocating federal tax-exempt flood recovery bonds to this project. If the interest rate difference — between taxable and tax-exempt bonds — were 1 percentage point, the company would save $320 million in interest payments over the life of the $1.2 billion bond. That would bring the firm’s total benefits to $2.7 million per permanent job, a truly astounding number. Even without considering the federal interest subsidy, the state tax credits would total $687,500 per job, many times the typical level of subsidy in deals such as this.

There are no estimates available about the potential environmental costs that will be caused by this plant. Since Iowa does a poor job of monitoring for pollution damage, those ongoing costs might be low, but if there is an accident, it could be costly.

The Register also quotes Debi Durham, head of IEDA, that incentives wouldn’t be needed if Iowa were to reduce corporate income tax rates. Nonsense. Research has shown repeatedly that this is a myth, and that in fact, Iowa’s income taxes paid by corporations are competitive with other states. In many cases, giant corporations are paying not a dime in income tax yet getting huge subsidy checks from the state to do things they would do without incentives.

This hand is the one we are dealt from years of unaccountable economic development strategies by Iowa state government.

Time for a fresh deck.

Posted by Peter Fisher, Research Director