Perks for the Most Profitable

The Iowa government has been giving tax credits and exemptions to corporations, potentially costing the state hundreds of millions of dollars and undermining its ability to fund essential services, according to a report by the Iowa Fiscal Partnership. Since 2000, the state government has introduced over 20 new tax credits, in addition to offering new tax exemptions to Microsoft to attract the tech giant to the state. However, the actual credits made available by the legislation could be just the beginning of the tax credits Microsoft will receive, as it will also be eligible for other tax credits such as the Research Activities Credit (RAC).

The RAC is a major concern because Iowa is one of the few states that allows for “refundability” of this credit, meaning that corporations do not need to owe any Iowa taxes to receive RAC benefits. In 2005, the 10 largest corporate claims for the RAC received $31.6 million, with two corporations, Whirlpool Corporation and Rockwell Collins, receiving substantial supplemental RAC credits. Whirlpool, which acquired Maytag Corporation in 2006, received a supplemental RAC of up to $1.5 million while closing the Newton Maytag operation and laying off at least 1,200 Iowa workers. During this period of closure, Whirlpool was still eligible to receive the supplementary as well as regular RACs from Iowa for which it would qualify under the tax code. Rockwell Collins, the largest private employer in Cedar Rapids, Iowa, received a total of $8.3 million in RAC benefits in 2005 for its work on aviation electronics and communication systems for military and commercial use. The article questions whether the public purpose of such tax credits is being met in both cases.

The article concludes that the Iowa government needs to exercise greater caution in adopting new tax credits and scrutinizing the use of existing ones. The author argues that tax credits erode the state’s ability to fund essential services in the long term, and result in the state effectively writing “secret checks” to corporations from the state treasury, with no accountability or assurance that they meet a public purpose.

The issue of tax credits and exemptions being given to corporations is not unique to Iowa. Across the United States, many state governments offer tax incentives to corporations in an effort to attract businesses and promote economic growth. However, there is ongoing debate over the effectiveness of such incentives and their impact on state budgets and essential services. Some argue that tax incentives are necessary to remain competitive in the global economy, while others maintain that such incentives are a form of corporate welfare that only benefits large companies at the expense of taxpayers.

Critics of tax incentives point to the lack of transparency and accountability in their administration. Many states do not have clear guidelines for evaluating the effectiveness of tax incentives, and some do not even require companies to report on how they use the credits. As a result, it can be difficult to determine whether tax incentives are achieving their intended goals, or simply lining the pockets of corporations.

In recent years, some states have taken steps to increase transparency and accountability in their tax incentive programs. For example, in 2015, the State of Missouri passed a law requiring companies to report how they use tax incentives, and the State of Ohio created a committee to review the effectiveness of tax incentives. Other states, including Kansas and Wisconsin, have scaled back or eliminated their tax incentive programs in the face of budget shortfalls.

The issue of tax incentives for corporations is likely to remain a topic of debate in Iowa and across the United States. While some argue that such incentives are necessary for economic growth, others maintain that they are a drain on state budgets and an example of corporate welfare. As states continue to grapple with budget shortfalls and economic challenges, it is likely that the debate over tax incentives will continue.

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