Staff Columnist

Billions in tax breaks - and Iowa still isn't competitive?

Iowa Gov. Kim Reynolds on Tuesday delivers her Condition of the State address at the Iowa Capitol in Des Moines. She cal
Iowa Gov. Kim Reynolds on Tuesday delivers her Condition of the State address at the Iowa Capitol in Des Moines. She called on state lawmakers to increase the sales tax but decrease state income and county property taxes. (Jim Slosiarek/The Gazette)

This tax cut game is rigged.

For all of the two decades or so your columnist has been watching state policy sausage meticulously produced under the Golden Dome of Wisdom, never can he recall a time when Iowa’s tax climate was heralded as competitive. At least that’s according to leaders and legislators with new plans for making it more competitive, usually by passing what’s known as “the largest tax cut in Iowa history.”

This has happened more often than you’d think.

Always, there are rankings, from think tanks and policy centers, etc., showing Iowa near the bottom of the competitiveness list. Our tax climate is driving people and business away, tax-cutters say. It’s worse than a polar vortex.

But like frigid winters, road construction and mosquitoes, nothing seems to change.

An Iowa Department of Revenue report in 2014 added up all the tax cuts, breaks, credits and exemptions approved over the previous two or so decades through 2010. It came to more than $12.1 billion every year. Many, if not most, of these were touted as ways to make Iowa more competitive and attractive.

The total tax break take in 2000 was $3.8 billion, and $7.1 billion in 2005. The department never bothered to complete its 2015 report, citing budget woes. No kidding? But it’s a good bet the total grew a few more billion.

Who can forget 1997’s largest state tax cut in Iowa history, slicing income taxes by 10 percent? And we all recall the 2013 largest tax cut in Iowa history, reducing commercial property taxes and providing credits. Just two years ago, the Republican-controlled Statehouse approved the 2018 largest tax cut in Iowa history, with individual and corporate income tax cuts potentially adding up to more than $2 billion over six budget years. And all the generosity in between.

But even after all of that, the Tax Foundation says our business tax climate ranks 42nd nationally. Sad trombone.

It seems like only yesterday, during Gov. Kim Reynolds’ election campaign, we were the No. 1 state.

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Should we send an angry letter? Should we pass a resolution? Should we call for an investigation?

Nope. Apparently we just need more tax cuts.

“First, we can improve our tax climate. We know a state’s tax climate can attract people. It can also drive them away. According to the Tax Foundation, Iowa ranks 42nd in business tax climate,” said Senate President Charles Schneider in remarks on opening day of the 2020 legislative session.

Schneider acknowledged that the 2018 cuts aren’t even fully phased in and likely will improve Iowa’s ranking “over time.”

“Still, it is a barrier to growth and an area where we must improve,” Schneider said.

On Tuesday in her Condition of the State address, Reynolds proposed raising the state sales tax by 1 cent, with three-eighths of it going to fill the Natural Resources and Outdoor Recreation Trust Fund. She’d use the other five-eighths to cut income taxes by an additional 10 percent. If she is allowed to add that to the 2018 cuts already in place, it surely will be the largest tax cut in Iowa history. Again.

Judges? They’ll allow it.

Reynolds also wants to slice property taxes by providing more state funding for local mental health services currently covered by a county tax levy. Details on all of these plans yet to come.

“I have no interest in raising taxes, so any increase in revenue from a sales tax must be more than offset by additional tax cuts. That starts with continuing to reduce our uncompetitive income tax rates,” Reynolds said in her speech.

Raise taxes? Perish the thought. But maybe before we pass more tax cuts, our Statehouse leaders could sift through that already massive stack of previously passed cuts, breaks and exemptions to see if any have outlived their usefulness. Are they truly effective? Do they do what they were much ballyhooed to do?

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In 2018, legislators created a special committee to look at tax credits, including many snapped up by large businesses, projected to be worth more than $435 million next budget year.

Committee members were appointed in July 2019, met for a couple of hours Oct. 30, briefly debated whether to meet again and then did not. It was not exactly a serious effort to review tax credits, and it’s doubtful we’re going to see a serious effort any time soon.

Economic development groups and business interests already are circling the wagons to protect these tasty slices of revenue.

Why, if you get rid of them, we won’t be competitive.

We could also try ignoring some Washington, D.C.-based think tank such as the Tax Foundation, which could not care less what kind of public schools and state universities we have, whether we can afford to provide mental health care and cover the cost of our justice, public health and child protection systems.

Those rankings should have about as much say in our public policymaking as People magazine’s most beautiful people list, the AP Top 25 or the Princeton party schools list. And that is no say whatsoever. Competitive states with strong leadership don’t need lists to know where they stand.

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

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