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Spending run through a tax return is still spending

March 12, 2010

Iowa's legislative Democrats have floated a proposal to cut back on state tax credit. Their effort, HSB 738, would lower the limits on some credits, suspend the scandal-ridden film credit, and form an oversight committee to ~~ignore the credits until the next scandal~~ monitor and evaluate the credits annually. Jason Clayworth reports:

The state’s film tax credit program would remain suspended for two years.

The maximum amount that could be awarded on five popular credit programs that largely deal with job creation, film production and business research would be lowered from a total of $185 million to $120 million.

Cut Iowa’s tax credits in its venture capital, “Iowa Fund of Funds” program from $100 million to $60 million.

The state’s Economic Development Revolving Loan Program Tax Credit would be eliminated, which is a 20 percent tax credit used to encourage business growth.

Many other of the state’s more than two dozen tax credit programs would see an overall cut of 10 percent.

The public would be given more information on who, why and how much tax credits are spent.
Programs would be regularly reviewed for performance under a new “Tax Expenditure Committee” that would report to the legislature.

It's far short of the real solution, but at least they seem to realize there is a problem:

The more than two dozen tax credit programs on Iowa’s books will cost the state an estimated $525 million in the fiscal year that begins July 1, that up by 75 percent from the fiscal year that ended June 30, 2007.

For comparison, the entire corporation income tax is budgeted to net Iowa $165 million this fiscal year.

Unfortunately, some folks still don't get it:

Republicans – who were not part of a working group that drafted the bill – expressed concern. Reviews are necessary but some of the cuts could hurt business, they said. They accused Democrats of proposing a tax increase.

"Iowans are writing bigger tax checks and that’s a tax increase," said House Republican Leader Kraig Paulsen of Hiawatha.

Many of these credits are refundable, and others are transferable. When a credit is refundable, like the Iowa research credit, you can have a negative income tax - in other words, a subsidy. A reduced subsidy isn't a tax increase. When a credit is "transferable," a recipient who can't use it sells it. When a business does it, it's called "factoring receivables." The only difference from spending is that it is spending receivables rather than cash.

Unfortunately, refundable and transferable credits are set to remain in the system under this bill. The legislature isn't ready for the bold but necessary reforms, like the Quick and Dirty Iowa Tax Reform.

Other coverage:

Iowa Independent

Radio Iowa