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Governor to sign tax credit haircut; it will grow back.

March 24, 2010

Governor Culver plans to sign SF 2380, the bill trimming back some of Iowa's 30-odd economic development tax credits.

The bill followed up a study by some of the Governor's leading aides that was unable to show that any of the tax credits do any good. A sensible response would have been to junk the whole system and use the savings to lower tax rates, but that was never in the cards.

The biggest planks of the bill are a two-year suspension of the scandal-ridden Film Tax Credits and a lowering of the cap for some business tax credits from $185 million annually to $120 million. If you can't even eliminate a credit as ridiculous and embarrassing as the film tax credit, you just aren't serious.

The legislators unwittingly proved one thing: that these credits are about politics and influence, not economic growth. Consider:

- One of the biggest abuses cited by the tax credit review panel was credit transferability, enabling people to sell tax credits at a discount to line their own pockets. The biggest remaining transferable credit is the historic rehabilitation credit. State Senator Jack Hatch and the husband of the Democratic candidate for U.S. Senate are both big rehab credit developers. Not surprisingly, transferability isn't touched by the bill.

- Two "feel-good" credits - the "young farmer tax credit" and the "State Tuition Organization" credit for contributions to private school tuition -- went untouched. Not because they demonstrably do anything for the economy, but because they have powerful, if narrow, constituencies.

As long as the legislature accepts the premise that it has any business financing specific private interests, these credits will always go to the influential and the well-lobbied. The idea that they do anything for the rest of us is a cynical fig leaf. Far better to make Iowa a better state for everyone to do business by adopting the Quick and Dirty Iowa Tax Reform.