If we have learned anything about tax credit programs in the last few years in Iowa, it's that they don't work. After the film credit program blew up in 2009, Governor Culver had his agency heads evaluate Iowa's tax credit programs. The report couldn't identify a single tax credit program that clearly had a positive return on the state's investment. Considering the $400 million or so spent on the dozens of credits, that's pretty sad.
But Economic Development officials would have nothing to do if they couldn't take money from existing businesses to lure and subsidize their competitors. So Governor Branstad's new Economic Development Director hates to see cuts in smokestack-chasing tax credits:
Department of Economic Development Director Debi Durham expressed disappointment Thursday that the Iowa House voted Wednesday to cut a key economic development program.
“It's kind of contrary to the whole idea of creating jobs,” Durham said when the topic of the Grow Iowa Values Fund came up during a meeting of the Department of Economic Development Board.
But House Speaker Kraig Paulsen isn't convinced:
"Government doesn't create jobs, except government jobs," Paulsen said.
Why don't these credit programs work? Two reasons. The first is opportunity costs. The money that goes to the subsidized businesses wouldn't have been burned in a furnace; if taxpayers were allowed to keep the money-- instead of giving it to the state to hand out as credits -- they would have spent or saved it according to their own "economic development" needs, and almost certainly more wisely than the state. The subsidies kill that.
The second reason: businesses aren't stupid. Taking money from your taxpayers to troll for new businesses is like taking your wife's purse into a bar to buy drinks for the girls. The girls reasonably assume you'll raid their purses when you get the chance, and any pickups you do get aren't exactly going to be prizes.
If you really want to impress business and make Iowa a place for new businesses to start and prosper, bribes won't work. You need a simple system with low rates -- something like the Tax Update's Quick and Dirty Iowa Tax Reform.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to