Iowa Governor Appoints Panel to Determine Effectiveness of Tax Credits

November 25, 2009

Stung by corruption in Iowa’s wasteful film tax credit program, Iowa Governor Chet Culver has called for a review of the state’s 30 tax credit programs. This week, Culver put the wheels in motion by appointing a Tax Credit Review Panel and giving them a (fast) deadline of December 4.

Tax credit programs are often about politicians picking winners and losers, using the tax code for bestowing favors on some industries over others. Evaluating the effectiveness of each tax credit program is a good step forward for showing how many of these programs undermine good tax policy.

We sent a letter to Governor Culver and the members of the panel yesterday, supporting the effort and urging ongoing oversight of tax credit programs, which often get less scrutiny than otherwise identical spending programs:

Requiring that each tax credit have a stated purpose and that each be evaluated annually for whether they are achieving that purpose is a valuable step for Iowa government.

Lawmakers in all states, trying to be mindful of their states’ business tax climates, are often tempted to lure businesses with lucrative tax incentives and subsidies instead of pursuing broad-based tax reform. As they do so, redundant tax credits are often created and remain even after they serve no positive purpose. Further, while officials roll out the red carpet for new businesses, existing in-state employers are taken for granted and are stuck paying higher taxes.

A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness, by repealing all incentives and subsidies. The tax code would thus be used just for raising revenue, not for changing economic behavior. While a review of state tax credits won’t achieve these goals right away, it is a positive first step toward informing tax code choices. We thank you and your officials for your action and are ready to assist however we can with our data, analysis, research and state comparisons on state tax credits.

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