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A PRESCRIPTION FOR THE SIDE EFFECTS OF THE PRESCRIPTION FOR THE SIDE EFFECTS

July 07, 2006

A eastern Iowa state senate candidate hasn't even won office yet, but he's already acts like a veteran politician: he has an abiding faith in the protean ability of the tax law to solve all problems. The problem he wants to solve is the difficulty of keeping our young folks in state when they get out of college. His solution? Tax Credits!

In this partnership, Iowa provides employers a partial tax credit for the amount of undergraduate educational debt that employers pay on behalf of their employees. Over the course of three years of employment, employers would pay a progressively increasing portion of the employee's educational debt up to a maximum of $25,000.

Taking a cue from the Governor's marketing efforts, he calls this the "Iowa Advantage Fund." He says this will have transformative powers:

College graduates will have the advantage of substantially reducing their college debt. This creates an incentive for them to remain in the state and for recent graduates who left the state to return.

Iowa employers will have the advantage of lower labor costs because of savings in reduced turnover costs and the tax credit. This creates an incentive for them to expand their hiring in Iowa.

Iowa will have the advantage of having more young people in their workforce and by creating an incentive for businesses to locate and expand their hiring in the state. This increases state tax revenues.

Even if this worked it would have a creepy feel of indentured servitude; young graduates would be bound to the land between the rivers until they at worked off their student loan debt. But it wouldn't work. It would be just one more tax incentive getting lost in an Iowa tax system that is already a senseless jumble of tax incentives. Consider:

- We have tax incentives to keep old folks who don't work.
- We have tax incentives for old buildings.
- We have tax incentives for "entertainment districts."
- We have tax incentives for "high-quality" new jobs.
- We have tax incentives for "new jobs" (presumably those of iffy quality).
- We have tax incentives for research.
- We have "Iowa Values" tax credits.
- We have ethanol and biofuels credits.
- We have tax incentives for companies that sell out-of-state.
- We have tax incentives for people to hold onto their businesses for at least ten years.
- We have about six tax incentives for venture capital.

If this stuff worked, by now Iowa would combine the historical and cultural grandeur of Paris with the entertainment facilities of Las Vegas, the energy economy of Saudi Arabia, and the research and venture capital dynamism of Silicon Valley.

But we don't. We have one of the most complicated state tax systems in the country and some of the highest tax rates. We have an economy that is struggling outside of a few metropolitan areas. And we have politicians who can't seem to see beyond ethanol in looking for solutions. Solving Iowas problems with these targeted "fixes" makes me think of somebody who takes sleeping pills at night, then takes meth to wake up in the morning, and then starts drinking to relax...

Hat tip: Side Notes, who has perceptive observations about why it's hard to keep them down on the farm.

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