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Will Iowa's legislature take another shot at the deduction for federal taxes?

January 28, 2010

While Governor Culver's proposed budget doesn't propose to repeal Iowa's deduction for federal taxes paid, a key legislator has quietly put that issue back in play, reports GlobeGazette.com:

Although legislative leaders repeatedly have said they don’t foresee action on a plan advanced last year to eliminate a provision of Iowa tax code that allows Iowans to deduct their federal income tax payment when calculating their Iowa tax liability, House Ways and Means Committee Chairman Paul Shomshor, D-Council Bluffs, re-assigned the bill to a subcommittee Wednesday.

“We’re willing to take a look at any type of tax issue that moves Iowa forward,” Shomshor said.

The Democratic legislative leadership failed to force the bill through last year. It seems unlikely that anything has changed to make it any easier to pass this year, but hope springs eternal for tax-hikers.

The Governor does call for a $52.5 million haircut - about 10% - to Iowa's corporate welfare bill. Governor Culver remains committed to corporate welfare:

The governor said he would work with the Legislature to figure out how to save $52 million in revenues from tax credit programs. He did not say whether he favored getting rid of controversial incentives for film-makers or other less-in-demand incentives pinpointed for elimination by a panel of state agency representatives.

However, he recommends keeping credits for newer or still-struggling industries, Biodiesel Blended Fuel Tax Credit, E85 Gasoline Promotion Tax Credit, Ethanol Promotion Tax Credit, Renewable Energy Tax Credit, and the Wind Energy Production Tax Credit.

Because if the federal 50-cent to $1 per gallon biodiesel subsidy isn't enough to get these "struggling" businesses over the top, the state needs to throw even more money at them.

The whole concept of corporate welfare tax credits is discredited, except to politicians and those who cash in on the credits. Real economic growth occurs outside the corporate welfare system. The only way to motivate that sort of growth is to lower the rates and broaden the tax base -- something like the Tax Update Quick and Dirty Iowa Tax Reform. Instead, we'll see more haggling over who gets the welfare, and how much.