Democrats propose tax credit cuts, more accountability

By James Q. Lynch 

The Gazette

DES MOINES – Legislative Democrats are proposing a package of tax credit changes they say would reduce the state's liability by $115 million a year, increase transparency and accountability, and offer more help to small businesses.

The reforms proposed in House Study Bill 738 will take the state's $525 million tax credit package off auto-pilot, according to Senate Ways and Means Committee Chairman Joe Bolkcom, D-Iowa City. The bill will end some tax credits, cut others and increase accountability.

Democrats are responding to questions raised about the credits after allegations of abuse arose in the state film tax credit program. On the advice of the Attorney General's Office, lawmakers plan to suspend the film tax credit until July 2012 while criminal and civil investigations are completed, Bolkcom said.

Republicans called the review of tax credits appropriate so Iowans know the credits are doing what lawmakers intended, House Minority Leader Kraig Paulsen, R-Hiawatha, said. However, his reading of the bill suggested it includes an increase in estate taxes.

However, Bolkcom said that was a Republican suggestion and expects it won't be controversial. Although it could increase state tax collections $40 million, it would not increase individual liability, he said.

Paulsen suspects majority Democrats will want to use any savings to increase spending rather than provide broad-based tax relief to Iowa taxpayers.

In addition to the suspension of the film tax credit, the reforms include lowering the cap on Department of Economic Development tax credits from $185 million to $120 million, cutting the Iowa Fund of Funds contingent tax credits from $100 million to $60 million, an overall cut of 10 percent from many other tax credits and an on-going oversight process to regularly evaluate all tax credit results.

They would create an on-going Tax Expenditure Committee under the Legislative Council to review tax credit programs, Bolkcom said.

Also, the supplemental Research Activities Credit would be changed to help small businesses and start-up firms create more jobs by giving them a 10 percent tax credit. The credit for firms with gross revenues more than $20 million a year would drop from 6.5 percent to 3 percent.

2010 Tax Credit Reform Highlights

 Increased Accountability and Review

Public information on who, why and how much tax credit spending.  (http://www.iowalifechanging.com/annualreport/2009/default.aspx)Regular review and performance evaluationA new, on-going Tax Expenditure Committee under the Legislative Council

Regular review and performance evaluation

A new, on-going Tax Expenditure Committee under the Legislative Council

Repealed or Suspended

Repealed: Economic Development Revolving Loan Program Tax CreditRepealed: Venture Capital Fund Investment Tax CreditRepealed: VAAPFAP credit refundabilitySuspended: Film Tax Credit through FY 2012

Repealed: Venture Capital Fund Investment Tax Credit

Repealed: VAAPFAP credit refundability

Suspended: Film Tax Credit through FY 2012

 Lower Tax Credit Caps by $65 Million

Lower cap on Department of Economic Development tax credits from $185 million to $120 million

Cut State Tax Liability by $40 million

Cut Iowa Fund of Funds Contingent Tax Credits from $100 million to $60 million

Reduced and Refocused Research Activity Credit

More than 50% CUT for large corporations receiving the Supplemental RACMore than 50%

More than 50% INCREASE for small businesses receiving the Supplemental RAC

 10% Cut for other Tax Credit Spending