As published in the May 22, 2011, Gazette, Cedar Rapids
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As Iowans, we take pride in our ability and willingness to ask — and answer — tough questions. That is especially so in budgeting, seeing where we have responsibilities and choosing how to meet them.
Thus, it was reassuring to see that the state’s new economic development director, Debi Durham, is interested in an “economic study” and telling more of the story about the Research Activities Credit (RAC) for business. (May 7 Gazette).
There is reason to be skeptical, however. Would we get the “whole story,” as she requests? Or just backing for the spin we have heard before? Since she paired her plea for a study with a desire to keep, market and expand this subsidy, these are fair questions.
There has, in fact already been a study of the RAC by the Iowa Department of Revenue in 2008. That statistical analysis of the credit in Iowa, neighboring states, and major manufacturing states concluded that “the size of the credit did not appear to affect any of the three indicators of research activity.”
Is Durham unaware of this study, or is she ignoring it because it does not support the expansion she wants?
What we know from that study, and other public information about the RAC, is that it is expensive, that it benefits some corporate giants that pay no income tax in Iowa, and that much is hidden. The lack of accountability makes the RAC a poster child for the need for comprehensive tax-credit reform, now that the abused and discredited film tax credit is in limbo.
It might be that some uses of the RAC could be shown to have a public benefit, and represent a public return on investment — but please, don’t insult Iowans with some vague and unsupported claim that it creates or supports X number of jobs.
How many jobs that are supported would be created in the recipient’s normal course of business? Is it really an “incentive,” or is it just something that gives a company a bonus for doing something it would already do?
Does the activity actually produce more tax revenue than it spends?
Yes, many questions need answering, or Durham’s plea for an economic study that shows the “whole story” rings hollow.
We need transparency.
Thanks to a 2009 law, we have slightly more of it. The state now makes an annual report on the RAC. The report, found at http://www.iowa.gov/tax/taxlaw/RACreport10.pdf, lists total corporate and individual claims against income-tax liability, the numbers of claimants, and the overall amounts of those claims paid out as “refunds” of unused credits.
What we know from the latest report is that in calendar year 2010, 133 companies benefited from over $45 million in research credits, with $43 million of that paid out in checks — which means the check recipients also paid no income tax.
What we don’t know is specifically who receives these credits, unless they exceed $500,000, and we don’t know specifically how much any of those companies received in checks.
These are important questions, fundamental questions. And it is critical that we see answers before our state officials presume to tell us we don’t have enough money to fund education, law enforcement or environmental quality, or maintain critical work-supporting services such as child care to working families who are struggling.
Mike Owen is assistant director of the Iowa Policy Project, a non-partisan public policy research organization in Iowa City. IPP reports are at www.IowaPolicyProject.org. Comments: email@example.com.