Nearly two years ago, when Republicans in the Iowa Legislature passed a huge tax cut bill, they also promised to create a committee to look at all the tax credits that exist in the state code.
For years, lawmakers on both sides have complained about the credits that siphon hundreds of millions of dollars that otherwise would be going to state coffers.
It’s not often that you hear legislators in both parties agree on anything – especially when it comes to money. So you’d think that this might be a sign for bipartisan progress.
So far, that’s not been the case. In fact, even though the committee was created in early 2018, its members were only appointed a few months ago. And they have met just once, in October.
At that meeting, much of it was taken up with a primer on the types of tax credits on the books — and at the end there was no commitment to even meet again.
Does this sound a like a committee that's getting much done?
Iowa Rep. Gary Mohr, the Bettendorf Republican who has been appointed the new appropriations chair in the Iowa House, told us the other day that he’s not heard anything about potential changes in the tax code that could affect revenues. Mohr isn't on the committee. However, he did say he's heard it might meet again.
Mind you, we aren’t outright opposed to tax credits. The idea of using the state's tax code to incentivize private-sector actions that will benefit the people of this state is a worthy endeavor if done judiciously. In the Quad-Cities, the historic preservation tax credits have been vital to redevelopment in downtown Davenport, along with other parts of our city. We believe there is a strong rationale for them.
In addition, the Earned Income Tax Credit is an important part of household budgets of low-income working Iowans. We also see the worth in credits that incentivize job creation.
You have free articles remaining.
However, these carve-outs have been a growing part of the state’s budget for years.
A Department of Revenue report last month estimated that claims in fiscal year 2020 will be $434 million, which would be up from $373 million last fiscal year. The previous few years, the spending on such credits has been relatively stable.
Some of these credits have become controversial.
The left has complained that big multi-national corporations are the biggest users of the Research Activities Credit, some of which essentially get a check from the state because they have no tax liability. Some conservative critics don’t like the idea of using tax credits at all. And some have complained about the EITC.
We think credits for things like housing, historic preservation, renewable fuels, job creation and early childhood development make sense.
Having said that, we know there are limits. And the rules underlying each of the credits should be regularly reviewed to make sure they achieve their goal and the system isn't being gamed.
Which brings us back to the tax credit review committee.
We don’t know how much the state might be able to save by taking a fresh look at these credits. Each of these credits has a constituency, and a threat to them would surely bring protests. But as the 2020 legislative session approaches, even with healthy state surpluses, we already are hearing that money is "tight," that spending on priorities like education, clean water and health care must be tempered.
Some lawmakers are wringing their hands about the economy as they point to trouble in the farm sector and the trade war as reasons to hold the line on spending.
Those warnings would be more credible if we knew lawmakers were doing what they all seem to agree on — taking a hard look at the growing number of tax credits in the state code.
So far, we see no evidence this is happening.