Last year’s tax reform package in Iowa was just a start. At least that’s the hope for Drew Klein, state director of Americans for Prosperity-Iowa.
“Economic trends are moving in the right direction,” Klein said. “But our system of federalism is a competitive system. States are competing against each other for that economic growth. Iowa has to continue to work and improve in those areas.”
Klein said part of the concern with last year’s tax reform package was some of the revenue triggers it relies upon before some aspects of the reform become effective. At the federal level, Klein said, the government can just print money and add to the deficit. At the state level, though, they have to maintain a balanced budget.
“Our organization applauded that with an asterisk,” Klein said. “It was good to move forward and cut tax rates. With revenue triggers, unfortunately they’re set in a way that really kicked those tax cuts quite a ways down the road. Iowa generally sees revenue growth of about 2.5-3 percent. That’s a fairly normative average over the course of about 20 years. Unfortunately the revenue trigger is set at 4 percent. Four percent every year for the next three or four years is what it will take to see the bulk of tax cuts to go into effect on both the personal and corporate side.”
Iowa, Klein said, has the second highest individual tax rate in the country and the highest corporate tax rate.
AFP-Iowa is also hopeful that Iowa can refine the idea of tax credits.
“The legislature needs to get really serious about leveling the playing field in the tax environment,” Klein said. “Right now there is $400-$450 million a year in tax credits — that becomes a problem because what they’re really doing is trying to centrally plan the economy. Folks on the economic development board in Des Moines are deciding which businesses will receive tax credits and dramatically reduce the tax burden, but unfortunately that puts more tax burden on other folks. Central planning is just a bad idea. Conservatives reject that idea.”
Giving John Deere tax credits, Klein said, won’t increase demand for tractors or combines.
“The relative return of investment of these things is fairly poor,” Klein said.
“We want to create a tax environment in which businesses large and small can do well. Unfortunately what we see in the current picture is big businesses have some advantages and small operations get almost nothing.”
Klein pointed to Polk County as an example where less than five miles separate massive data centers. Facebook is building and won’t pay any property taxes for 20 years. They’re also gettin gother tax credits.
Less than five miles away is a small independent data operation. That business received zero benefits and will probably employ relatively similar numbers of people, according to Klein.
The state also helped lure Apple to Waukee.
“That was a $200 million package in which the state gave $20 million,” Klein said. “You could make a fairly reasonable economic argument at the local level the city will be better off from a tax standpoint, but the $20 million the state chipped in got us nothing. There is no benefit to the state for the $20 million we chipped in there.
“I say that to illustrate Governor Reynolds is doing a great job, but she did a really lousy job with that Apple deal. As a movement, as a philosophical group of people, we have to maintain our ability to applaud and correct at the same time.”
Rather than exempting $400 million worth of tax revenue, Klein said the state could cut taxes by $400 million.
“Whether we’re doing it in a targeted way tha tonly addresses 20-30 companies across Iowa or we do it for everybody across the board,” he said. “We believe in the economic system of chaos and random value generation more so than we believe in a group of 10-15 people in Des Moines and their ability to decide which companies produce the greatest value for Iowa. I’ll stand on the free market side of that.”