The Branstad administration is pursuing a rule change that breaks the rules of good government.
The Department of Revenue has served notice that it intends to unilaterally alter rules surrounding a sales tax exemption for Iowa manufacturers. The current exemption provides a tax break on the purchase of items used in the manufacturing process. But the administration and business interests contend it needs to be modernized and expanded. The proposed change would cut state sales taxes by $40 million and sales taxes collected by local governments by $6 million, according to the department.
Two years ago, the department asked the Legislature to make the changes, but the bill got sidelined as lawmakers approved a massive commercial property tax break also benefiting manufacturers. Now, revenue officials are using the administrative rules process to bypass lawmakers.
The notion of an executive branch agency rewriting its rules to provide a nearly $50 million tax cut is beyond troubling. Revenue officials insist state law doesn’t provide “clear guidance” and they’re simply prescribing rules that clarify. But we’re also not comforted by the thought of agencies filling gaps in state law with rules as they see fit, and with tens of millions of dollars at stake. That’s the job of lawmakers.
In July, the governor vetoed $55 million in one-time education funding, citing the need for fiscal restraint. Four months later, he pursues a $46 million ongoing tax break. There’s something wrong with this picture.
Also disconcerting is the state’s continuing pursuit of tax breaks, credits and giveaways that have transformed the state’s tax laws into Swiss cheese. Over the years, lawmakers have carved out break after break with very little thought to future budgetary effects and virtually no follow-up on whether the carve-outs have fulfilled lofty promises of economic benefits. And now, with lawmakers reluctant to carve out more, the executive branch moves in to do the job without them.
Legislators on the Administrative Rules Review Committee have the power to put the rule change on hold, and they should use it. The Branstad administration should drop its rule change bid and make its case to the General Assembly, which is elected to craft a budget and write tax policy. If it’s truly a great idea that will create jobs, as the department contents, surely the sales job won’t be that difficult.
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