Guest Opinion

Stop insanity of tax cuts and giveaways
By David Osterberg, Executive Director

As published in the March 7, 2011, Des Moines Register



Iowa schools and communities are struggling to maintain basic services, yet lawmakers are proposing huge tax cuts that will require major cuts to those services.

The Iowa House has proposed cutting state income taxes by 20 percent. That would cost $350 million in 2012 and $700 million per year subsequently.

The governor has proposed lowering the top rate on the corporate income tax. That would cost $130 million in 2012 and $200 million per year subsequently.

The Senate and House have proposed adopting "bonus depreciation" rules. These new breaks for business would cost the treasury between $27 million and $83 million in 2011 and $99 million and $141 million in 2012.

Iowa lawmakers will cut existing state programs and services to give these tax breaks. It's the only way to keep the budget balanced. A $100 million cut in taxes means $100 million less to keep current teachers, public health nurses, and police and corrections officers on the job. It also means job cuts for private businesses that provide services to the state.

Our research has shown that while state spending actually has declined as a share of the state economy, spending through the tax code for business has risen markedly in recent years.

For example, the Iowa Department of Revenue recently reported that one specific tax-credit program allowed 133 corporations to pay no corporate income tax in Iowa. We actually wrote them checks instead.

There should be a lesson here. That tax credit, for research activities in Iowa, was initially sold primarily as a benefit to small, growing businesses, yet nine of every 10 dollars the state spent on that subsidy went to a total of nine corporations, all of them large. Just three of those companies - Rockwell Collins, Deere and DuPont - together received checks from the state of over $30 million last year.

Here we go again

Once again, lawmakers are proposing big special breaks for business but fundamentally misrepresent who will benefit. It's the big and the wealthy, at the expense of everyone else.

- Three-quarters of corporate income tax revenue comes from businesses with headquarters outside Iowa chain stores and multistate manufacturers and financial institutions making profits in Iowa. These compete with homegrown Main Street businesses.

- The "bonus depreciation" benefits apply only to businesses making large investments - it would go almost entirely to large corporations and certainly not those with financial challenges.

- Finally, the 20 percent cut in income taxes would require the biggest cuts to public services but overwhelmingly helps wealthy people who aren't struggling. Iowans making less than $21,000 a year (one-fifth of all Iowa households) would see a scant $17 tax break on average. For the top 1 percent ($900,000 and more per year) the tax break averages over $6,800. This would be a lot to many of us, but not those receiving it.

Iowa lawmakers are not helping "small business" and regular taxpayers with these tax proposals. We can't afford their plans, and should not abide their rhetoric.

davidosterbergphoto

DAVID OSTERBERG
is executive director
of the nonpartisan
Iowa Policy Project
in Iowa City.

Contact: dosterberg(at)iowapolicyproject.org.