IPP: Branstad’s Administrative Tax Cut For Businesses


If you are looking for solid, fact based opinions on what effect Iowa’s fiscal policies will have in the real world before they are enacted one of the best sources around is the Iowa Policy Project.

Once more under the guidance of Terry Branstad, Iowa is embarking on some new territory in the fiscal arena. Normally fiscal matters are a part of the budgeting powers that are held by the legislature. There is good reason for that. If the budgeting powers were held by one person, then that person would be hard to control whatever party that person is a member of. Bufgeting includes taxing powers. One could easily see that one person exercising budget and tax powers could easily reward friends and punish enemies without any checks.

This is pretty much what Terry Branstad did a couple weeks ago when he unilaterally interpreted a clause in the Iowa tax code to give something like a $40 million gift to the business community. This took place about 3 months after Branstad line item vetoed a $50 million one time expenditure that the legislature approved for Iowa schools. It looks like Branstad is running the budget on his own with schools being punished and businesses getting rewarded.

So we turn to Iowa Policy Project for some insight. From Research Director Peter Fisher we see in brief that a tax cut is not good for Iowa:

The administration’s proposal to create new sales tax exemptions for Iowa businesses is unnecessary, expensive and counterproductive. The state can ill afford another tax break that will harm essential state services while producing little or no economic benefit.

State and local taxes have little effect on business location decisions
State and local taxes are less than two percent of total costs for the average corporation. As a result, even large cuts in state taxes are unlikely to have an effect on the investment and location decisions of businesses, which are driven by more significant factors such as labor, transportation, and energy costs, and access to markets and suppliers.

Enacting a subsidy through administrative rules guarantees complete absence of evaluation and accountability
While the sales tax break has been promoted as an economic development incentive, creating it by administrative rule eliminates even the minimal level of accountability established by the Legislature for the periodic review of tax credits. There will be no review, no evaluation of its effectiveness, not even an annual accounting of its cost.

Tax breaks erode support for public investments in our future
The proliferation of tax incentives and business tax cuts over the past two decades has resulted in several hundred million dollars each year cut from the state budget. This has undermined the state’s ability to support quality education, from pre-school through public colleges and universities, which in the long run will have serious consequences for state economic growth and prosperity.

From IPP Executive Director Mike Owen:

New rule! Governor wants to make laws himself

We all know the drill: The Legislature passes bills and the Governor signs or vetoes them, whereupon they become either laws, or nothing.

Not anymore, apparently.

The move by the Branstad administration to implement a new sales tax break worth an estimated $40 million a year — possibly more — is taking place outside the legislative session. If it succeeds, we have entered a new world of executive authority in Iowa.

Business lobbyists wanted the change, it could not pass the Legislature, and the administration thinks it has found a short cut: Change the longstanding interpretation of the existing law. Presto, tens of millions of dollars will be available for manufacturers. And those same tens of millions of dollars will not be available for schools.

Iowa Policy Project

Iowa Policy Project

If the Iowa legislature has any spine at all this should be the first issue they address in the next session. However with former ALEC president Linda Upmeyer as the new Speaker of the Iowa House the chances are probably zero. Unless they stand up to the governor’s action they essentially approve of this change in the scope of power. The underlying issue is not the money, but the change in who has what power. Budgetary power was a power few legislatures have handed over willingly. It looks like Iowa’s is about to.

About Dave Bradley

retired in West Liberty
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