BY JOHN HENDRICKSON & JOHN MOZENA
Iowa’s lawmakers justify handing out tax credits and incentives to private businesses by promising those deals will end up benefiting the people of Iowa. However, the transparency and accountability for these programs are so poor that Iowa’s taxpayers have no way of knowing whether the tax credits are delivering the intended results. That’s why the Legislature’s upcoming tax credit review committee is so important. It has the opportunity to improve and extend the transparency and accountability surrounding Iowa’s tax credits.
It’s a simple question of good government: If Iowa’s taxpayers are being asked to invest in private businesses, they should have access to as much information about the deal as any bank loan officer or Wall Street analyst presented with a similar investment opportunity.
Iowa’s complicated system of tax credits and incentives is asked to achieve several different – and often inconsistent – policy goals. In addition to economic development, tax credits are also asked to drive workforce development, promote renewable energy, redress socioeconomic inequalities, encourage historic preservation and achieve other policy priorities.
The more problems tax credits are asked to solve, the more expensive they get.
The State Auditor of Iowa reports that the cost of these various tax credits has more than doubled in the past 12 years, from $197.6 million to $422.9 million. Iowa’s budget is already tight with education and health and human services consuming over 70 percent of state spending. This leaves little room for other priorities of state government spending.
Supporters make the argument that tax credits are needed to drive economic development, and that Iowa is in competition with other states for both businesses and people. But are tax credits and incentives the best way to win this competition? Iowa finds itself in a perpetual “arms race” with its neighbors over who can provide the largest incentives. There’s no way to win that kind of race, but plenty of ways to lose by artificially increasing inequality in a state’s economy and giving politically-connected big businesses unfair advantages over startups and other competitors.
Increasingly, academics and other researchers across the country are proving how bad these types of tax credits are at creating jobs or growing economies, with a growing array of high-quality studies seriously questioning their effectiveness. Even Richard Florida, one of the best-known urban policy experts in the world, argues that there is “no relationship between incentives and any meaningful measure of economic performance.”
The time is right for the legislature to undertake a rigorous review of tax credits and incentives. If legislators do nothing else, they should require full transparency on all tax credit deals, as well as stronger requirements for third-party review of the “economic impact” calculations that justify so many of these deals. This should also include public transparency and independent analysis before a potential economic development deal is even made. A sunset provision should also be applied to all tax credits, requiring a comprehensive review that regularly forces the legislature to vote whether to continue a credit or incentive program based on real evidence.
Iowa’s taxpayers deserve greater transparency and accountability. Their interests – and the interests of Iowa’s entire business community — would be better served by following a pro-growth policy agenda by lowering our already high state income and corporate tax rates. It’s time for Iowa to leave outdated economic development policies behind and embrace the future by increasing transparency and accountability, while eliminating wasteful tax credits in favor of policies that encourage all Iowa businesses to create good jobs.
John Hendrickson is Policy Director for TEF Iowa, and John Mozena is President of the Center for Economic Accountability