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You mean tax credits aren't free?

March 11, 2009

Fans of tax credits like to pretend that they are free money falling from the sky. They don't like to point out that if I get a tax credit, that means you are paying extra taxes on my behalf (explanation here). Fine for me; for you, not so much.

This bit of reality is facing our legislators:

Lawmakers are considering setting aside $50 million a year in tax breaks to help renovate historic properties.
That's $30 million more than is currently allocated. And the proposal is being made when Iowa faces hundreds of millions of dollars in revenue shortfalls and as Gov. Chet Culver calls for cuts in similar types of tax breaks

Troy Price, a spokesman for Culver, said Tuesday that the governor believes this year may not be the right time to increase historic tax credits.

I love funky old buildings, but that doesn't mean I should make you pay for them for me. When the state is full of unrented commercial space, housing prices are in free-fall, and millions of dollars of recently-renovated lofts sit unsold in Des Moines, the idea of subsidizing more commercial and residential construction right now seems a bit nuts.

Of course, that may not stop our legislators:

Many buildings continue to sit idle and will never be rebuilt without the added tax breaks. To do nothing would further harm the state's economy, advocates say.
The state's investment is returned 3- or 4-to-1, depending on the community, said Rep. Sharon Steckman, D-Mason City, who is leading discussion on House Study Bill 134. "The beauty of it is that it's keeping the history of a community alive."

3 or 4 to 1? That means we should just devote the entire state budget to fixing old buildings, because we'll triple our money! At least! There's no way that this multiplier takes into account the other things that could have been done with the money, let alone the lost income to other real estate owners because they have to compete with subsidized old buildings.

Because money is tight, backers of tax credits are having to battle each other. The best answer is for them all to lose, with the savings used to bring down tax rates for those of us who don't have lobbyists.

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