The state is tasked to create an economic environment that fosters job growth, innovation, and wealth creation. Growth states exhibit unique growth traits: favorable capital treatment, sufficient talent base, innovation support, minimal regulatory burden, and inviting quality of life. Iowa has an abysmal record on new business creation, 42nd to be exact. Iowa has had success in attracting favored industries, but this is not a measure of economic vitality, it is the epitome of corporate welfare, crony capitalism, and inefficient use of taxpayer resources.
Background: Many states exhibit growth traits. Texas treats income well (no tax), California has an excellent talent base (in technology and entrepreneurship), Nevada has a modest regulatory structure (high degree of economic freedom) and Colorado invites workforce to its state (recreation and tolerance of all kinds). These states have a “brand” that attracts companies, people and capital. What is Iowa’s brand?
Economic development officials (including governors, legislators and city leaders) celebrate big wins which are reliably coupled with an ‘incentive package’, sometimes of nauseating proportion. Iowa’s economic ‘toolbox’ primarily consists of tax credits (income tax offsets), high quality jobs credits (more income tax offsets), R&D tax credits (more income tax offsets), and a burgeoning TIF program (land and property tax abatement). There’s a slew of 35+ state tax credit schemes designed around highly influential corporations (insurance, finance, ag, and favored industries of politicians like Egyptian fertilizer plants). The schemes are highly selective, self-serving, and in limited cases effective in their enticements. For those wins, champagne is uncorked, news is made.
The ultimate measure of a state’s economic environment is new enterprise creation. These little wins go under the radar while the creators and innovators lead with blood, sweat and tears. Many Iowa communities, even Cedar Falls, lag behind other innovation cities across the country. We need to triage our innovation ecosystem and make certain our policies support both small and large enterprises. We should celebrate entrepreneurial risk taking, evaluate our regulatory structure, invest in economic infrastructure (energy, roads, fiber, etc.), support social and mentorship networks, all while maximizing quality of life for our desired workforce.
- My Roadmap for Growing our Economy and Creating Jobs - reform tax code, cleanse code, support courts, reform TIF
- Treat Capital Well, Simplify Taxes (Flat, Fair and Zero)
- Iowa collects about $485 million in corporate income tax; we give away about $300 million in business tax credits. Give all corporations credits, their full tax bill, 0% corporate tax. This savings could be reinvested in the business or distributed as a dividend and taxed at normal Iowa income levels (see next point).
- Fair and Flat Personal Income Tax – On the personal tax side, we need to eliminate the highly progressive top rate of 8.98% by flattening and simplifying personal income tax. I support the EngageIowa plan for a flat and fair tax... a drastic tax simplification and revenue stability plan. An approximate 3.3% flat tax would be supplemented by 1% in consumption tax (the flat, fair, and zero plan is revenue neutral). Why flat? All persons should bear the cost of government, but it would be proportional to their income and allow NO deductions. Some argue a flat tax is regressive, but if one considers the myriad of assistance programs (SNAP, Section 8, child care, heating assistance, earned-income credit, etc.), the safety net remains. Further, while income tax revenues vary greatly, consumption tax revenues are steady.
- Code Cleanse and Courts
- Just as we are doing in Cedar Falls, we should perform a state code cleanse and reduce regulatory burdens for licensing, permitting, and business compliance matters. A government license or permit is not a badge of quality. At best, it provides a false sense of security.
- The courts exist to settle grievances between two parties, to enforce contracts (written, verbal, uniform commercial transactions and more), to mitigate civil disputes and to judge criminal allegations. We would be well served to invest in our courts to make them efficient arbitrators of law – civil and criminal.
- TIF Reform
- TIF reform should be a legislative priority. Originally designated for blighted areas, TIF has become a corporate entitlement subsidized by the Iowa tax payer (I know... not only do I approve TIF projects at the city level, I have done several TIF-like projects across the country). I detailed my thoughts in this blog post, The Old Economic Development Toolbox. TIF should be phased-out in favor of general-fund-financed projects. The state could play an important role as a financing authority, but it would no longer certify districts with special property tax revenue treatment. The city could turn industrial development to the private sector (similar to our subdivision ordinance). The city could offer low-cost financing or any other incentive it deemed worthy, but the property tax treatment remains equitable across all property classes.
- Workforce Development and Attraction
- We must develop and attract talent. On the development side, our education system plays a critical role, from K-12 to the top University programs - we need to educate creators and makers. Specific policy should be left to regional political subdivisions including Universities, Community Colleges, and other institutions of learning. On the state level, big thinking like "Skilled Iowa" may yield results, but the effectiveness of top-down planning is still unknown for company attraction and retention. Workforce development and attraction is critical to secure Iowa’s economic future, quality of life is perhaps our greatest attribute. We should always be looking to enhance quality of life which is found in great schools, safe communities, good government and respect of civil liberties.
Government doesn’t create jobs, it establishes the environment for which enterprises thrive or die. Iowa has a unique opportunity to distinguish itself as a magnet for enterprise – retention, expansion, and attraction. A place where people want to build businesses, create jobs, and generate wealth. Iowa has the assets - gigabit cities, educated workforce, farmer work ethic, Midwestern values, logistics infrastructure, low-cost & green energy, and unbeatable quality of life. Now we need to form the attitude, create the culture. We need to build our brand.
For nearly two decades, I have been growing Iowa businesses here, domestically and abroad. I have utilized TIFs, developed international trade policy, analyzed markets, lead product development and transformed order fulfillment processes. Please read my professional story.