Staff Columnist

Thirst for tax cuts will drain the budget

The State Capitol Building in Des Moines on Wednesday, January 15, 2014. (Stephen Mally/The Gazette-KCRG TV9)
The State Capitol Building in Des Moines on Wednesday, January 15, 2014. (Stephen Mally/The Gazette-KCRG TV9)

Due to a lack of revenue, the Iowa Department of Revenue can’t finish a study on all the revenue we’re not collecting due to tax breaks.

It’s yet another curious, unintended consequence of a tight state budget. Or maybe not so unintended. Still, curious.

It’s called the “Iowa Tax Expenditure Study.” And its last version, analyzing Fiscal Year 2010, pegged the total cost of state tax breaks, credits and exemptions at a whopping $12.1 billion annually. That’s remarkable, considering Iowa’s entire state general fund budget is $7.2 billion.

It’s the sort of number that makes you wonder whether the state’s current budget mess is really all about overspending, as Republicans claim. It’s the sort of number that dents GOP arguments for even more tax cuts. It’s the sort of number that gets attention.

And it’s the sort of study that might come in handy as Republicans who run the Statehouse seek to cut state taxes by $1 billion or more.

But, oddly enough, the 2015 version of the study, which should have been released late last year, has yet to materialize. Initial findings on sales tax exemptions were released more than a year ago. Final numbers on the whole enchilada, who knows?

“There is currently no established date of release,” department spokesman John Fuller told me in an email. “Unfortunately, the department has not had the resources available to complete the study.”

Based on past studies, we can make an educated guess about 2015.

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In 2000, tax expenditures totaled $3.86 billion. The number grew to $7.1 billion in 2005 and to aforementioned $12.1 billion in 2010. You may be sensing a trend.

It’s the exact opposite of trends we’re seeing, for example, in state support for public schools, community colleges and universities. There might be a connection.

But these numbers, any numbers, actually, don’t amount to a hill of beans in this crazy Statehouse. Republicans are too busy practicing politics, while the state budget swiftly gets drained.

The $1.1 billion tax cut approved this past week by Senate Republicans is a truly astounding example. The bill, which cuts personal and corporate income taxes by more than $1.1 billion by 2023 was introduced and approved in a week. The vote came just a day after non-partisan fiscal analysts revealed its massive budget implications. Republicans attempted no explanation as to what spending they planned to cut to make a tax cut that large affordable. They sneered at the very question.

This after a 2017 session where the Legislature needed to pass midyear budget cuts and dip into reserves on multiple occasions to keep the budget balanced. More midyear cuts are needed this year as sluggish state revenues continue to fall short of forecasts. The Legislature and Gov. Kim Reynolds have given up on the idea of paying back reserve funds they scooped anytime soon.

It used to be lawmakers operated under a binge-purge cycle. Good times would boost revenues and create a surplus. Legislators would giddily hand out tax cuts and increase spending. When the surplus disappeared, as it always does, and the economy slumped, the budget would slide off a cliff.

As bad and irresponsible as that was, we’re now seeing a purge-purge cycle. At a moment when revenues are sluggish and the state can’t afford to adequately fund its priorities — education, public safety, the judicial system, mental health services — Republicans want to cut taxes.

Backers of the Senate bill claim it’s bold. It will supercharge Iowa’s economy, they insist, because the other $12.1 billion in previous tax reductions didn’t quite do the job.

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But in reality, it’s lazy. A truly bold tax reform plan would have attacked the growing tangle of breaks and carve-outs. It would have been crafted out in the open months ago, not dumped on our doorstep last week, with ample opportunity for input beyond the usual suspects. And it would have clearly, frankly identified the budget adjustments needed to make it work.

It’s true, Republicans do want to get rid of a provision allowing Iowans to deduct their federal taxes from state tax liability. Good call. It’s one of the biggest boulders on the tax cut pile and needlessly complicates our tax code. Beyond that, however, the bill’s tax credit adjustments add up to just $24.3 million by 2023, in a $1.1 billion bill.

I’m not saying rooting out tax breaks we no longer need is easy. Many come with powerful constituencies, and some are worth keeping. I wouldn’t recommend applying sales tax to groceries, for instance, or erasing the earned income tax credit. The Senate bill phases out a tax credit for historic preservation, potentially gutting a valuable economic development tool for towns across Iowa. The evidence of its value can be found in brick and mortar on countless main streets.

The problem is Republicans haven’t really tried. Not yet, anyway.

We’re told the House is working from a more responsible tax cut plan floated by Reynolds, with no corporate cuts and trigger mechanisms that delay cuts if revenue growth languishes. The Senate bill is unlikely to become law. That’s good news, but the governor’s plan also misses an opportunity to clean out the tax break thicket.

The reality is, we really can’t slash taxes and responsibly fund the important stuff we want without exorcising the ghosts of excessive tax giveaways past. Otherwise, we won’t even have enough revenue to study revenue.

l Comments: (319) 398-8262; todd.dorman@thegazette.com

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