Tax credit debate

Earlier this morning I wrote a story about the tax credit report issued by seven of Governor Chet Culver’s top agency managers.   Senate Majority Leader Mike Gronstal (D-Council Bluffs) is the guest on this weekend’s Iowa Press, and during this morning’s show taping Gronstal had some things to say about tax credits.

I’m on the road right now, but should be back a bit later with more details.

UPDATE:  Here’s the video from this weekend’s “Iowa Press” featuring Gronstal.    Here’s the Q&A about tax credits:

Henderson: State tax credits have garnered a good deal of attention. Let’s talk about one specifically to start, a state tax credit for movie and TV productions. Will you eliminate that?

Gronstal: I think it’s hard to say whether we’ll eliminate it. I have said, and I repeat, I don’t think that’s changed, that’s it’s 50/50 as to whether it survives. Some of the proponents of the film industry have made the case that it creates jobs. Some of the — some of the skeptics have said these are short-term jobs that don’t last a long time. The study out in Mexico tax credits — I mean at this point, we don’t know even know if the tax credit is a 25-percent tax credit or a 50-percent tax credit. The attorney general’s interpretation is that it’s a 25-percent tax credit. Many others thought this was a 50-percent tax credit. In Mew Mexico — I hesitate to get so detailed, but in New Mexico they have a 25-percent tax credit that they say for every dollar invested they get 1.55. If this is a 50-percent tax credit and all of that applies in Iowa, we’re losing money on every dollar we invest. It doesn’t make sense. That’s the evaluation we’ve got to make. Does this actually produce a net benefit to the state treasury? If it does not, I say eliminate it.

Henderson: How would you vote right now?

Gronstal: Today I would vote to eliminate it.

Henderson: A panel of the governor’s top state agency managers have suggested capping all business related tax credits that the state awards at $185 million annually. Is that something legislators are willing to do?

Gronstal: We have a set of tax credits now. We put a cap in last year that put several tax credits under that cap, and then we have some that were not under that cap. I think each of these things has to — I think we have to go through a tough evaluation through the legislative process. There’s some tax credits that you can make a strong case create real jobs, long-term jobs, and the kinds of jobs we want in this state, high wage, high-skilled jobs.

Henderson: Such as?

Gronstal: Well, I think you’ve seen — and maybe it doesn’t work everywhere in every circumstance, but I think you’ve seen research activities credits do things for — for large companies like John Deere and Pioneer Hi-bred and some of those kinds of companies bring research to Iowa, and that creates long-term jobs that are very high wage, very high skilled.

Henderson: One more question about that research activities credit. In some instances some businesses in Iowa are claiming credit so much that the state winds up writing them a check because a credit is worth more than their tax liability to the state. This group of agency managers says that practice should end. Do you agree?

Gronstal: I think — again, I think you have to go through an evaluation that’s just a little bit more in depth than that. Iowa has a corporate income tax structure that is predicated on sales in Iowa. If you have no sales in Iowa, you pay no income tax — corporate income taxes in Iowa. So for a company like Rockwell Collins, who sells all of their products to airplane manufacturers — and we don’t have very many of those in Iowa — they have very, very little tax liability in our state. That doesn’t alter the fact they’re bringing the research here and producing those products here, thousands of employees, very high wage, very high skilled, building real wealth in this state. I don’t think you want to discourage that kind of activity. So the legislature is going to go through a tough evaluation on all of these.