DES MOINES — The Iowa Legislature has never created a bad tax credit, according to testimony Monday from representatives of business, industry and human services groups.
House Appropriations Committee Chairman Pat Grassley, R-New Hartford, who proposed House Study Bill 187 that would reduce tax credits available to Iowa businesses, industries and individuals and eliminate refundability when there is no tax liability heard a not unexpected defense of the $427 million in tax credits offered by the state.
“This met my expectations of what was going to happen today,” Grassley said after an hour of people supporting the tax credits used by their business or sector of the state economy. “That’s why you have to include everything and all of the tax credits to have a comprehensive conversation. I fully expected this.”
From the largest to smallest tax credits, speaker after speaker told the subcommittee why their credit deserves to be continued.
The reason lawmakers have created the tax credits is because Iowa has some of the highest marginal corporate tax rates and individual income tax rates in the nation, Jennifer Kingland of the Iowa Taxpayers Association said. That “cripples” Iowa in efforts to attract business and industry, she said.
Eliminating refundability of credits such as the $69.4 million Research Activities Tax Credit would only compound the problem, she said.
Dave Tierney, government affairs manager for midwest region at Monsanto Co., said the refundable research and development tax credit is one reason the company has several thousand employees at 15 sites around Iowa. Some of those facilities have been in Iowa for years and will remain here. However, many of those employees could do their jobs from anywhere, he said.
“It comes down to numbers,” Tierney said, explaining the benefits of the tax credit when Iowa’s tax rates are double those in some other states.
Victoria Daniels of the Iowa Department of Revenue said business and industry would be hurt by eliminating refundable credits, as would low-income recipients of the $71.8 million Earned Income Tax Credit who owe money to the state for child support and other expenses.
Many of the people claiming the Earned Income Tax Credit are working for entry level wages in entry level jobs, added Lana Shope of the Iowa Community Action Association. They tend to spend their money in their community or neighborhood, she said.
Mike Triplett’s advice on one of the smallest tax credits, the $100 income tax credit that the 12,000 members of the Iowa Emergency Medical Services Association — two-thirds of them volunteers — can claim, was to the point: “Leave it alone.”
Another problem with the bill is that the credits would be available on a first-come, first-served basis. The credits could be claimed before entities file in the second half of the year, said Rep. Chris Hall, D-Sioux City.
“Right now, the bill seems to prioritize big companies and corporations over the individual taxpayer,” said Hall, the ranking Democrat on the Appropriations Committee. “I think most citizens would say that if their tax credits are getting pooled in with those of multibillion-dollar, international companies that have a team of attorneys, is that actually fair treatment?”
Hall also questioned the purpose of HSB 187.
Setting the tax credit cap at $400 million beginning in July and reducing it by $10 million a year to $370 million would free up about $180 million the bill directs to a “sub-account” in the Taxpayer Trust Fund, Grassley explained. Nothing in the bill specifies how the funds would be used.
“If this bill was brought forward to help the state manage difficult years like the one we’re currently in,” Hall said, “why is it diverting tens of millions of dollars into a yet-to-be determined trust fund, some sub-account of the Taxpayer Trust Fund? That’s a major question when you look at the number of dollars that are siphoned off and the fact it doesn’t improve the state’s budget condition.”
Hall called it odd that Grassley introduced his bill “in the wake of very difficult budget talks in which the state is having to reduce its current year budget by more than $130 million more than previously guessed and it does nothing to help the balance sheet in future years.”
His bill was drafted before the Revenue Estimating Conference reduced revenue projections earlier this month, Grassley said, adding, “It was not done in reaction to that.”
By depositing those untapped tax credit funds in the Taxpayer Trust Fund, Grassley said it would make possible a conversation about broad-based tax reform.
Grassley expects to have at least one more subcommittee meeting on the bill before bringing it to his full committee and said HSB 187 likely will undergo significant changes before getting to the House floor.