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Film credit regrets

October 05, 2009

Now that Iowa's film credit program has exploded in corruption and mismanagement, one of our legislative leaders is inching towards contrition:

"If it’s all just a great big give-away with no long-term job creation or economic growth in this state or people having full-time employment, then this isn’t a very good deal for the state of Iowa," said Senate Majority Leader Mike Gronstal, D-Council Bluffs.

That's the sort of thing you should think of before you blow $363 million or so. Better wise late than never, though. And if his party turns against tax credits before the Republicans figure it out, they might inoculate themselves against much of the fallout from the fiasco.

If Sen. Gronstal and his party colleagues turn decisively against the state's tax credit giveaways while the Republicans dither, it will blow the biggest opportunity for real tax reform in Iowa ever.

For those who think these tax credits might somehow be a good thing, the Des Moines Register's report today on how they got enacted should give you pause. Presumably a "good" tax credit would be one enacted with careful consideration of alternatives and of the costs and benefits. Dream on:

When Iowa lawmakers were considering creation of an income tax credit for filmmakers in 2007, they passed a major amendment without knowing it would increase the state's cost by tens of millions of dollars annually.

The amendment - allowing filmmakers to sell their unused tax credits - was approved by the House Economic Growth Committee by a voice vote with little discussion and no objections from either Republicans or Democrats.

What did that little amendment do?

Before the amendment was adopted, the nonpartisan Legislative Services Agency estimated in a memo to lawmakers that the credit would cost less than $800,000 in revenue losses this fiscal year, which ends June 30. After the amendment was adopted, no new estimate was prepared.

By spring 2009, the film tax credits had clearly gained in popularity. An estimate in March by the Iowa Department of Revenue and Finance placed this year's revenue loss far above $800,000 - at $26.3 million.

And surely much more now.

The film credit is only one of over two dozen "economic development" credits, all passed piecemeal over the years in response to this or that lobbyist. The idea that these somehow come together as a coherent or effective economic development plan, or ever could, is ludicrous. If you really want to improve Iowa's bottom-scraping business tax climate and improve the economy, go with the Tax Update's quick and dirty tax reform:

- Repeal Iowa's futile corporation income tax.
- Repeal every economic development tax credit (including the research credit)
- Lower the top individual rate to 4% or lower. To do so, we have to...
- Repeal federal tax deductibility on Iowa returns.
- Repeal every other crummy tax break, including "Endow Iowa" credits and the tuition break for contributions to private schools. Lower tax rates are worth more.
- Conform to federal law in the definition of taxable income by default.

Then if you really want to get somewhere, amend the state constitution to limit spending to the increase in population growth plus inflation, absent a supermajority vote in both Iowa houses. But even tax reform is probably a pipe dream. Iowa needs something like this, but our politicians hardly seem to be up to it.