Posts Tagged ‘Debi Durham’

Iowa’s “economic development” policy: bipartisan follies.

Monday, September 9th, 2013 by Joe Kristan

Three economic development opinions, each wrong in its own way.  The Sioux City Journal, to its credit, had a special set of features on Iowa’s “Economic development” tax credits over the weekend, running two guest columns and an editorial on the topic:

Debi Durham, director of the Iowa Economic Development Authority  State incentives are necessary to keep Iowa competitive.

Joe Bolkcom, Chairman of Iowa Senate Ways and Means Committee, Costly tax giveaways are not best way to grow Iowa’s economy.

Sioux City Journal editorial,  OUR OPINION: Incentives help level playing field for Iowa.

 

durhamWe’ll start with Ms. Durham, as she is Iowa’s official tax credit promoter.

Our tax climate puts Iowa at a competitive disadvantage.

She’s got that part right.  Iowa has an extremely complex tax system, but one full of complexity and loopholes. Unfortunately, that’s as good as it gets.

Using tax incentives to reduce the high burden our current structure imposes on job creators is one way to balance the bottom line and keep Iowa in the running for these highly competitive new investments.

Lowering the rates and eliminating the loopholes to take the Iowa Economic Development Authority out of the picture is another way.

Ideally, we would reform our tax system in a comprehensive way (and I’m eager to work with Sen. Joe Bolkcom to do just that), but until then, incentives are essential.

Sen. Bolkcom contends the incentives we utilize to recruit and retain these projects are too large and that we don’t get enough in return. But incentives are a good investment. The state sets aside $170 million annually in tax incentives to invest in these proven economic development programs that pay Iowans back in new jobs, new capital investment, and increased revenues that can be put to work for Iowa’s taxpayers.

“Proven economic development programs?”   If she’s talking about tax credits, the proof is thin.  Back in the Culver administration, after the Film Tax Credit economic development program exploded in scandal, a blue-ribbon committee failed to find any solid evidence that any of the state’s dozens of “targeted” tax breaks did any good.

The state budgets for these incentives and the return on investment is calculated prior to every award, and each project must meet job creation and capital investment requirements before it is even considered.

The key word is “before.”  The awards work because they are projected to.  It’s self-fulfilling!  There is no consideration that the projects might happen without taxpayer money, and no consideration that the money being spent on the recipients of these projects is coming out of the pocket of other taxpayers, eliminating just as much economic activity as is being “created” by the tax credits.

bolkcomNow we turn to Senator Bolkcom.  We’ll start with what he gets right:

To cite the Orascom deal again, that corporation’s bottom line got a huge benefit because it won’t pay property taxes for the next 20 years. This will hurt Lee County’s existing local businesses and homeowners. They will pay Orascom’s share of increased road maintenance, fire, police, school and other costs.

Correct.  And it’s not just Lee County.  All other Iowa taxpayers have to pay more so Orascom can pay less.  He’s coming close to getting it right.  So close, but…

Third, the size of economic incentives should be based on the number of good jobs created, not the size of the capital investment. If Iowa had done that, we wouldn’t be paying Orascom more than three million federal, state and local dollars for each promised permanent job.

…not quite.  The senator accepts the premise that the state has the ability to “target” companies to bring good jobs — that the state has the ability to wisely allocate investment capital.  If you believe that, I have a film tax credit program to sell to you.

 

The mistake is the idea that Iowa is competing only with other states when it issues these credits.  When an out-of-state business gets money from Iowa taxpayers to move here, it isn’t other states that write the checks — it’s Iowans.  And the beneficiaries use their subsidies to compete with existing Iowa businesses for customers and for skilled workers.  They take money from Iowa’s existing businesses and their employees to lure and subsidize their competitors.

And even looking at it from the perspective the companies Iowa is trying to seduce, it has to look dodgy.  Iowa looks like a guy who walks into a bar with his wife’s purse, dipping into it to buy drinks for the girls.  It’s not impressive, and girls he gets that way probably aren’t real prizes to begin with.

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

While the Governor and his economic development officials give lip service to fixing Iowa’s tax system, they haven’t done much to make it happen.  They have pushed through property tax reform, but the income tax system has only added more loopholes and special interest carveouts.  Every new tax break creates a new sworn enemy to real tax reform — drastic simplification, drastically lowered rates, and elimination of the futile Iowa corporation income tax.

It’s much easier to hold a press conference and hand out tax credits than to build the case for tax reform that helps taxpayers who lack lobbyists and fixers.

Related: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Share

Tax Roundup, 3/6/2013: Tax return numerology, and similar economic development science. Plus rapper tax tips!

Wednesday, March 6th, 2013 by Joe Kristan

20130306-1Tax tip: IRS doesn’t buy this numerology stuff.  A strange story out of New York:

A tailor who counted star athletes including Rickey Henderson and Wilt Chamberlain among his clients has pleaded guilty to skirting about $2 million in sales and income taxes.

Mohanbhai Ramchandani pleaded guilty on Tuesday, state Attorney General Eric Schneiderman said. His company, Mohan’s Custom Tailors Inc., also has had local stars Patrick Ewing and Darryl Strawberry among its clients and made an appearance on Bravo’s “The Real Housewives of New York City.”

The charges say that he failed to pay $1.7 million in sales taxes starting in 2001, and he failed to pay $256,000 of income taxes from 2007 through 2009.  I didn’t know tailoring could be so lucrative.  But this is unusual:

Authorities said a whistle-blower first raised concerns over Ramchandani’s tax practices. They said one indication of fraud was the use of numbers on his tax forms that added up to multiples of 10, an outgrowth of his belief in numerology.

Once in a while you prepare a return that happens to foot to a round number somewhere.  It looks funny, but it will happen occasionally just by chance.  But when they are all round, apparently the tax people might notice.

 

As strange as Mr. Ramchandani’s approach to numbers is, Iowa gives him a run for his money.   Iowa’s lead tax credit pusher, Debi Durham, has issued a press release touting the economic wonders of enormous tax credits granted Orascom, an Egyptian company, to build a fertilizer plant in Southeast Iowa.  The release bases its conclusions on ” the Regional Economic Modeling Inc. (REMI) analysis for the Iowa Fertilizer Co. project.”  From the release:

“The  REMI analysis of the Iowa Fertilizer Co. project speaks for itself,” said Debi Durham, director of the Iowa Economic Development Authority (IEDA).  “On the front end, Iowa Fertilizer Co. will inject $1.4 billion of capital investment into our state and create at least 165 permanent jobs and thousands of construction-related jobs.  Now we know that the benefits of that project will serve Iowans for years to come.”

It speaks for itself and it says nothing.    It says nothing about whether the project would have gone ahead without the credits, but Iowa’s claims that Illinois was hot after the plant with its own incentives lack credibility.

The analysis really betrays itself by omitting two key words: “opportunity cost.”  It claims every projected benefit from the project without asking whether any benefits would be available if the money were used for something else.  It certainly doesn’t say what Iowa loses by having a complex tax system with high rates to pay big subsidies to the well-connected.

I’ve said it before: using taxpayer money to lure businesses is like a guy taking his wife’s purse to the bar to buy drinks for the girls.  It’s not impressive.  They might let the guy buy the drinks, but they realize he’ll treat them like he is treating his wife if he gets the chance.  And anybody he goes home with isn’t likely to be much of a prize.

 

Egypt taking a different approach to Orascom.   The Orascom executives do better in Iowa than back home, reports SiouxCityJournal.com:

An Egyptian billionaire behind one of the largest and most controversial projects in the state is being investigated for tax evasion and has been barred from leaving his country.

According to an article published Tuesday in Construction Week Online, Orascom Construction CEO Nassef Sawiris and his father, Onsi Sawiris, are barred from travel until a resolution is reached regarding the sale of an Orascom subsidiary and the taxes from that sale.

As hard as it is to deal with Iowa and federal tax authorities, they are probably downright reasonable compared to Egyptian revenuers.  I suspect that the “resolution” being sought is much like that sought by a kidnapper.

 

The TaxProf links to this from the New York Times Dealbook: Why Carried Interest Is a Capital Gain.  It is as good an explanation as I’ve seen of why capital gain on private equity isn’t a crime against humanity:

Typically private equity investors are paid a 2% management fee, on which they pay ordinary income tax rates, and a 20% carried interest of the partnership’s profits that is only paid after limited partners receive a preferred return of 8%.

Carried interest, therefore, is the profits share on the sale of a capital asset and not “ordinary income” as some would have it treated.  In other words, it is a capital gain within a partnership and is rightfully taxed at the long-term capital gains rate  — provided that  the asset, or company, is held for more than one year.

The underlying principle is no different than two friends who partner together to purchase a restaurant.  One might bring capital and the other brings expertise.  The restaurant could be in disrepair or a great concept that needs additional capital to expand.  The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time.  The friend has the capital to invest, but doesn’t possess the operational or investment skills to generate a return.

When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment.  A private equity partnership works in the same way.  This is Partnership Law 101.

Exactly.  And it’s not like a salary, where somebody writes you a check.  The private equity investor is taking a risk, and on any given investment is likely to get nothing.  It’s not like, say, a tenured law school faculty paycheck that comes every two weeks.

 

 

It’s not just the rich guy?  Obamacare Tax Increases Will Impact Us All (Andrew Lundeen, Tax Policy Blog).

Howard Gleckman, Changing Government’s Inflation Measure Would Raise Taxes as Much as it Would Cut Spending (TaxVox)

Jason Dinesen,  Greatest Hits: Enrolled Agents, The Liechtenstein of the Tax World.  “When people hear ‘enrolled agent,’ they think either ‘what the hell is
that?’ or ‘he must work for the IRS, flee for your lives!’”

Anthony Nitti,  Business Owners Could Find Their Tax Deferral Backfiring.  Deferring income into higher-rate years works badly.

Russ Fox,  Did the IRS Write Law?  “I suspect the IRS has erred.”  I agree, the IRS can’t change statutory rates to deal with budget issues.

 

Jack Townsend,  Proposed New FBAR Form And Explanation

Brian Strahle,  Will Maryland Match Virginia’s Corporate Income Tax Rate?

Patrick Temple-West,  Tax-exempt bonds get scrutiny, and more

TaxGrrrl, Taxes From A To Z (2013): C Is For Carpooling

Robert Goulder, Will EITI Kill Transfer Pricing? (Tax.com).  First ask yourself: what is EITI?

 

David Brunori, Remember the Alamo, Buy a Gun (Tax.com)  On the unwisdom of sales tax holidays, even for guns.


ProTip: Don’t take your tax advice from rappers.  This from Going Concern:

As you might expect, TMZ has the scoop and it quotes a number of artists who are currently considering tips for strippers as a legit deduction and therefore a serious tax strategy. And who doesn’t love creative tax planning? But how might they rationalize this idea? 

Well, Bizzy Bone considers these young ladies to be like his family:

Bizzy Bone tells TMZ, “I’m giving charity to females who need their light bills paid.  So, of course, that’s a write-off.  You write off your kids, don’t you?”

Um, no.  Mr. Bone might want to ponder the stories of Ja Rule, Fat Joe, and Beanie Sigel, to name a few, before he gets too smug about his tax deductions.

 

Share

Tax Roundup, 9/5/2012: Laying it on thick for the fertilizer plant. Math is hard. So is tax, even with TurboTax.

Wednesday, September 5th, 2012 by Joe Kristan

Governor Branstad’s administration is making a big push to promote STEM education: Science, Technology, Engineering and Math.  This headline in the Des Moines Register today shows how badly we need math education, especially in Iowa’s “Economic Development” bureaucracy:

165 jobs, $110 million in aid

Officials mull boosting incentives to keep $1.3 billion fertilizer plant project in Iowa

This is the worst kind of smokestack chasing, which is always the preferred approach of “economic development officials.”  Never mind that Iowa already has competing fertilizer plants — as Sioux Citian Debi Durham, Iowa chief official economic developer, surely knows.    Never mind that Iowa and Illinois are getting played shamelessly by Orascom, the fertilizer company.  Never mind that the money comes from taxes paid by existing competitors, and by thousands of unsubsidized businesses like ours, and our employees.  Never mind all that — it’s about buying a ribbon-cutting, not about making the state a good place for everyone to do business Unless, of course, Roth & Company gets a nice state check for $21.3 million for the jobs we have already created.

At least some folks are catching on to the game.  From the article:

Orascom has attracted a diverse group of opponents, from parents, environmentalists and liberal groups such as Iowa Citizens for Community Improvement and Iowa Policy Project, to conservative groups such as Public Interest Group, Lee County Tea Party and Americans for Tax Reform.

So there’s agreement from left to right that it’s a bad idea for the state.  But if politicians think it’s a good idea for them, it will go through.

Related: Taking your wife’s purse to buy drinks for the girls and  LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Who catches the identity thieves?  Hint: it’s not Doug Shulman’s IRS.  From the Bradenton (Florida) Patch:

Det. B. Pieper from the police department’s gang unit put together the case by paying close attention during a routine drug bust…

Pieper was one of several detectives watching traffic coming to and from a house where police suspected drugs were sold. He said he and his partner watched a car leave the house and then run a stop sign. When they pulled over the car Brydson was in the passenger seat with a laptop and a bag of marijuana on her lap.

Brydson quickly closed the laptop, which made Pieper suspicious. When he searched her purse, he said he found several TurboTax debit cards with different names on them. He also noticed a 60-step instruction sheet on how to perform tax fraud through TurboTax.

So local cops have to do the IRS’s job of stopping the thieves who take $5 billion of our taxes annually while the IRS is busy building a new preparer regulation bureaucracy at the behest of the national tax prep firms.  Priorities!

 

 Courtney A. Strutt Todd: Congratulations on Your Scholarship. Don’t Forget to Pay Uncle Sam (Davis Brown Tax Law Blog)

TaxProf, Tax Planks in Democratic Party Platform

Andrew Mitchel, Partnership Definition

Martin Sullivan, The Effects of Interest Allocation Rules in a Territorial System (Tax.com)

Linda Beale, Romney and Private Equity’s Questionable Schemes for Paying Very Little Tax

Kay Bell, Tax moves to make in September 2012

Robert D. Flach has a new Buzz roundup of tax blog posts.

Jim Maule offers A Peek at the Production of Tax Ignorance.  It’s booming.

I think spending less than you earn works even betterDo Mandates or Tax Subsidies Do a Better Job of Boosting Savings?

Have a nice dayCBO: Federal Healthcare Spending Will Exceed Discretionary Spending by 2016 (William McBride, Tax Policy Blog)

GIGO: it’s Tax Court Doctrine!  From a case rejecting a taxpayer’s use of TurboTax as an excuse for a bad return:

It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program. See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). Simply put: garbage in, garbage out.

Tim Geithner, call your office.

Cite:  Bartlett, T.C. Memo 2012-254.

Related:  Reason #17 to Hire Me: Blaming Turbo Tax Can Not Protect You From Penalties (Anthony Nitti)

 

Share

Bipartisan bad ideas for Iowa growth

Friday, May 13th, 2011 by Joe Kristan

Iowa already has dozens of economic development tax credits, including four separate venture capital tax credits For its efforts, Iowa consistently rates near the bottom in measures of new business growth and entrepreneurship.
Now comes Governor Branstad and his economic development director Debi Durham with an innovative economic development proposal: tax credits! Including venture capital credits! The Des Moines Register reports:

Durham said legislation that would provide $2 million in tax credits for angel investors, and possibly another $10 million to create a statewide seed fund, would bring much needed capital to companies with innovative products and ideas.

This is more of the smokestack-chasing that was the theme of the Vilsack and Culver administrations. It assumes real entrepreneurs are going to want to spend a lot of time applying for government credits and playing the system.
Let’s look at how the four venture capital credits we have are working, based on the Tax Credit study prepared after the collapse of the film credit program:
Economic Development Region Revolving Fund Tax Credit: from 2007 through 2009, total credits claimed were $7,903, but the study says “These claims are erroneous and have been reported to the Department of Revenue Compliance Division”
Venture Capital Tax Credit

Share

New name, same old stuff

Tuesday, January 25th, 2011 by Joe Kristan

Governor Branstad

Share