Iowa again scored in the D-/F range on the Tax Foundation's new State Business Tax Climate Index released last week. Iowa did move up from 45 to 41 on the survey, but not because its tax policy improved; it barely changed. Iowa looks better only because other states, notably Illinois, got much worse.
Why is Iowa's business climate perennially awful? Because we have high rates and a complex tax system. The high rates and complexity finance a bunch of deductions and tax credits for favored constituencies. So what what will Iowa do about it?
More Tax Credits! The Des Moines Register reports:
Iowa business leaders, hoping to jump-start a proposed $100 million seed fund, are expected to ask lawmakers to sweeten the tax credits available to lure investors into backing startup companies.
What wouldn’t change: The existing $8 million annual cap on state tax credits available to attract seed-fund investment. It was set last year by lawmakers and is part of Iowa’s $120 million annual lid on all tax credits used to spark new jobs and investment.
What could change: Boosting the tax credit used to match investment — now at 20 percent — to possibly as high as 100 percent, the amount that South Carolina and Hawaii provide for early-stage investors.
Of the 31 tax credits listed on Iowa's tax credit summary, Form 148, 22 are some sort of economic development subsidy. Three of them are venture capital credits, directed already at start-ups. A study of Iowa's tax credits in the Culver administration failed to show that any of them did any good.
Iowa can't force feed growth through subsidies. Taking money from some businesses and their employees and giving it to those who know how to work the system doesn't grow Iowa. The Film tax credit debacle should have taught us that.
The best thing Iowa could do for start-ups -- and those who are already here and trying to keep the doors open -- is to give us a low-rate system that is easy to comply with. The Quick and Dirty Iowa Tax Reform would do more to help the state's business environment than any number of targeted tax breaks.
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