The Iowa Fiscal Partnership has released a report with recommendations for a long-term approach to meet the economic downturn faced by the state. Partnership spokesman, Charles Bruner, says the cuts announced by the governor will address the situation for this fiscal year, but more steps are needed for the new budget year.
Bruner says they won’t know the extent of the budget shortfall until the Revenue Estimating Conference meets Friday (December 12), but indications are it will be a substantial budge deficit. Bruner says the deficit could be in excess of 500-million dollar and be at or over 10% of the new state budget.
Bruner says their report says there’s one area that really needs to be addressed by the governor and legislature. Bruner says as the state looks to tighten its belt, they really need to look at the spending provided through tax credits and not just the spending provided through the tax code.
Research director Peter Fisher says once tax credits are enacted, the credits are not reviewed annually and simply stay on the books.
Fisher says, "I think one of the startling numbers in our report, is that the business tax credits in the aggregate, which were about $80 million just in 2005 are gonna to grow to over $350 million — that’s the projection– by the next fiscal year."
So Fisher says those tax credits have grown by a factor of four or more in just five years. Fisher and Bruner say the legislature has to look at those tax credits and tax loopholes created in the system to find ways to cut the budget. Bruner says there’s one thing the state has to be wary of.
He says as states look at how to respond to shortfalls, economists warn against cutting essential services as a way to respond, because doing so could prolong the recession. The report suggests limiting the amount one corporation can claim under the "Research Activities Credit" to $250,000. Limiting the capital gains exclusion up to $100,000, and freezing the phase out of the Social Security tax exemption and restructure the provide relief to low-income seniors.
The Iowa Fiscal Partnership is a joint initiative of the Child & Family Policy Center in Des Moines and the Iowa Policy Project in Iowa City and Mount Vernon. View their full report on the Iowa Fiscal Partnership website .