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The cost of corporate welfare in Iowa

December 02, 2008

The left-leaning Iowa Fiscal Partnership has tallied up the corporate welfare bill in Iowa:

In particular, the cost of business tax credits has grown dramatically. In Fiscal Year 2001, about $100 million in tax credits were awarded to businesses, a number which had increased fivefold by 2007. Most of these credits had an economic development purpose; the largest are the enterprise zone credits, the High Quality Job Creation Program, the Research Activities Credit, and the Industrial New Jobs Training Program. Projections indicate that in excess of $400 million in liabilities for tax credits already awarded will be felt each year from Fiscal Year 2010 through 2012. The actual amounts will no doubt be substantially higher as new credits are proposed and awarded. These tax-credit expansions have contributed to a substantial decline in revenue from the corporate income tax, which accounted for over 7 percent of state tax revenue in the early 1980s, but less than 3 percent in recent years.

$400 million per year -- an amount likely in excess of the entire current-year take from Iowa's highest-rate-in-the-nation corporation income tax -- is taken from your paycheck, your company, or your employer, just to fund somebody else's project. Maybe somebody as deserving and needy as Johnny Depp.

While the Iowa Fiscal Partnership rightly points to the cost of these "economic development" programs, they aren't the only culprit in the erosion of the corporation tax base. More significant is the rise of S corporations since the 1980s; most new businesses are set up as S corporations or partnerships, and many old C corporations became S corporations during the 1980s.

Of course, corporate taxpayers have become more sophisticated in their tax planning, and Iowa's 12% rate makes it worthwhile to structure your business away from Iowa.

The logical approach: repeal Iowa's corporate income tax and its corporate welfare programs. Sure, we wouldn't get to subsidize Hollywood that way, but such is the price of progress.

The IFP report is a good outline of the long-term budget and tax policy train wreck that Iowa is facing -- it is about much more than corporate taxes. While I don't think they are on the right track in all of their solutions, the report is an important step towards facing the problems.

Links:

Iowa Fiscal Partnership report: Iowa's Aging Population: Growing Challenge for State Budget
News Release

Tags: corporate welfare.economic development.iowa tax policy.