Posts Tagged ‘Joe Bolkcom’

Tax Roundup, 10/7/15: Iowa Dept. of Revenue proposes sound policy, protests erupt. And: skating to a low-tax state.

Wednesday, October 7th, 2015 by Joe Kristan

20150122-1The Iowa Department of Revenue proposes broad definitions for industrial sales tax exemption. The chief Democratic taxwriter in the Iowa Senate is unhappy.

The Des Moines Register reports:

State legislators will consider a proposal next week that would reduce the tax burden for manufacturers by up to $46 million in a move critics say bypasses the legislative process.

In an effort to avoid a “double tax,” current law exempts from taxation some items used during the manufacturing process and instead taxes the final product. The proposal would expand the number of items that qualify for that exemption.

The policy behind the exemption is sound. As David Brunori points out,

Only bad things happen when businesses pay sales tax. First, the businesses paying the tax pass the burden on to their customers in the form of higher prices. But the tax is hidden. People do not know they are paying it. Politicians, and perhaps the New York Times, may like that lack of transparency, but it is awful government policy. Second, the higher priced products purchased by consumers are often subject to tax. This gives rise to a tax on a tax. That is awful tax policy. Finally, taxation of business inputs artificially keeps sales tax rates low. People think the sales tax rate is lower than it actually is. None of this is good.

Whether the Department has overstepped its authority is a separate question from the tax policy. From the Register story:

But state Sen. Joe Bolkcom, D-Iowa City, pointed out the fiscal effects of the legislation on Monday.

“We’ve been told repeatedly by this governor that we can’t afford to educate our kids, and here he goes again with another big tax cut for Iowa’s largest corporations and putting their needs ahead of our kids,” Bolkcom said. “It’s wrong.”

“I don’t remember ever tax policy being made by the rules committee or being made by the executive branch without the consent of the Legislature,” Bolkcom said. “This is a huge tax policy change that (Gov. Branstad) has unilaterally decided.”

Iowa businesses have long complained about the restrictive definition of “equipment” and “property directly and primarily used in processing.” It seems to me that the new definitions are more in line with business reality and the intent of the exemption. Still, I haven’t seen a fight over proposed regulations like this, so I have no idea how this will play out.

Link: Proposed new Iowa rules.




TaxGrrrl, Hockey Players Ice High Tax Teams In Favor Of Tax Savings:

With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.

According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes.

Sports free agency is an unusual natural experiment on whether state taxes matter. There are always other factors than taxes in choosing a team.  Winning is worth something. Still, it’s pretty much the same job, just with different taxes. The resulting low-tax preference is what you would predict.


Kay Bell, Fantasy sports: Gambling or just good, clean online fun?  Either way, taxes are due, but deduction options differ.

Jack Townsend, Swiss Asset Manager Settles Up with DOJ Tax. A $295,000 fine. Another example of second prong of the IRS approach to international tax compliance — shoot the jaywalkers so you can slap the big offenders on the wrist.

Tony Nitti, Tax Geek Tuesday: A Buyer’s Best Friend – Understanding The Section 338(h)(10) Election. “What if a buyer could acquire a target’s stock for legal purposes — thereby keeping the target alive and preserving its non-transferable assets — but acquire the target’s assets for tax purposes, giving the buyer the stepped-up basis in the asset it seeks?”


Jim Maule, Putting More Tax Information “Out There” for the Tax Database Thieves:

Until and unless the protection of online data is heightened to a point of 99 percent confidence, the IRS should not create yet another vulnerability, another door through which the robbers can force their way in. In the meantime, why not focus on the problem rather than the symptoms? The underlying cause of some noncompliance is the complexity of the tax laws. Treating the symptoms does not cure the illness.



Stephen Olsen, Summary Opinions for 8/31/15 to 9/11/15. Procedurally Taxing rounds up recent developments in tax procedure, “heavy on estate and gift this week.”




David Brunori, North Carolina Tax Changes — Sort of Good, Kind of Bad (Tax Analysts Blog):

On the good side, the state lowered the personal income tax rate from 5.75 percent to 5.49 percent. Lowering rates is usually good for the economy and for the people paying taxes. I believe that people know how to spend their money in ways that improve the economy much better than the government does. The state also expanded the no-tax exemption to $15,500, providing more relief for low-income taxpayers. In general that is a good thing.

On the super-negative front, the legislature is giving Hollywood moguls $30 million in each of the next two years to make films in North Carolina. I guess they haven’t read any of the studies showing that film credits don’t work. But why let facts stand in the way of policymaking?

It’s probably only a matter of time before they realize the wisdom of Iowa’s enlightened approach to hosting filmmakers.


Joseph Henchman, California Supreme Court Hears Arguments in MTC Case (Tax Policy Blog).

Roberton Williams, New Estimates Of How Many Households Pay No Federal Income Tax (TaxVox). “We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent.”  Mitt Romney, call your office.


TaxProf, The IRS Scandal, Day 881. Quoting Victor David Hanson: “What now constitutes actionable criminal behavior in the scandals at the IRS, EPA, ICE and a host of other alphabet agencies are not treated as per se violations of the law. Rather, they are judged according to whether the offender and his crime were deemed progressive and well-intended—or reactionary and thus prosecutable.”

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Part 1. Sometimes I think the TaxProf has to reach deep to have something to run every day, but his continued focus on the outrageous IRS behavior is a public service. I’m not sure Peter thinks there is a scandal in the first place.


Career Corner. Do PwC Employees Really Like the New Student Loan Perk? (Caleb Newquist, Going Concern). No word on whether the spiff is available in cash for those thrifty students who got by without loans.



Tax Roundup, 12/5/14: Senate just too busy to pass extenders? And: grumbling about incentive tax credits.

Friday, December 5th, 2014 by Joe Kristan

lizard20140826Is the Senate just too darn busy to vote on the House-passed extender bill? Lame Duck Senate Majority Leader Harry Reid says it just might be, says a report in The Hill:

Majority Leader Harry Reid (D-Nev.) said Thursday night that the Senate might not be able to pass the House tax extenders bill before the end of the year.

“Everyone knows we have to do a spending bill. Everyone knows we have to do a defense bill,” Reid said on the Senate floor. “Everyone knows that we’re trying to do some tax extenders. We’re trying to do that but we’ll see.”

I hope he’s not serious. Given the stakes to individual and business taxpayers and to the IRS this filing season, I think Senator Reid coud fit an up-or-down vote into his busy, busy day.

This passive-aggressive foot-dragging could be an attempt to get some concession out of Senate Republicans while Senator Reid still is majority leader. Perhaps it’s a mere gesture to save face after his humiliation at the hands of the President, who shot down a compromise he had negotiated with House GOP taxwriter Dave Camp. Or maybe it’s just a poke at the GOP, which will take over the Senate next month.

The bill  (HR 5771) would extend 55 provisions that lapsed at the end of 2013 through the end of this month retroactively. The Lazarus Provisions include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit and the five-year limit on built-in gains. It also includes individual provisions like the exclusion for IRA donations for charity and the deduction for educator expenses.

I still expect the Senate to pick up the bill soon. Accounting Today reports that the Senate is likely to vote on the House-passed “Extender” bill as soon as next week. Still, it is an unwelcome turn in the extenders melodrama, leaving taxpayers and the IRS hanging just a little longer.

Prior coverage: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Paul Neiffer, House Passes HR 5771 Tax Extender Bill


20120906-1Will corporate welfare tax incentives be an issue in the next Iowa legislature? A report by Iowa Public Radio’s Joyce Russell hints that it might be:

State assistance to attract Google, Microsoft, and Facebook to Iowa is under scrutiny by a statehouse committee.

The panel is looking at tax incentives the state hands out to attract industry, including the big datacenters which are making more than three billion dollars in capital investments in the state.

It appears chief Iowa Senate taxwriter Joe Bolkcom is involved:

“We need a better handle on the money being spent and the jobs being created,” says Iowa City Democrat Joe Bolkcom.

Officials with the Department of Revenue say the companies’ tax records are confidential . Lawmakers may sponsor legislation to get around that.

“Taxpayers have a right to know the exact cost,” Bolkcom says.

That’s the wonder of corporate welfare tax credits. Because tax returns are confidential, we can’t know exactly how much taxpayer money is thrown at any company. All we see are the phot0-ops and ribbon cuttings by the politicians who are being generous with other people’s money.

Senator Bolkcom says Iowa’s tax credits have doubled in four years. That’s true, though they are still below the $342 million record set in fiscal year 2007. The most recent Iowa Tax Credits Contingent Liabilities Report shows $248.5 million tax credits were issued in the last fiscal year.  The report attributes the decline to caps imposed on the credits in the wake of the Film Tax Credit Scandal.  That amount is expected to rise to $402 million for 2016. That compares to $428 million collected by the entire Iowa corporation income tax in 2013, according to this report (page 6).

I have an idea for a compromise. Get rid of Iowa’s highest-in-the world corporation income tax and all of the incentive tax credits. Enact The Tax Update’s Quick and Dirty Iowa Tax Reform! That should make everyone happy, right?


20140826-1Robert D. Flach has some fresh Friday Buzz. It looks like I won’t have my extended comments on his thoughts on tax preparer civil disobedience until next week. Dang extenders.

Keith Fogg, Litigating the Merits of a Trust Fund Recovery Penalty Case in CDP When the Taxpayer Fails to Receive the Notice (Procedurally Taxing)

Robert Wood, Recovered IRS Emails Can’t Be Revealed Because Of Privacy…That Was Already Breached,

Kay Bell, NYC’s high cigarette tax blamed for Eric Garner’s death.

TaxProf, The IRS Scandal, Day 575 (TaxProf)


Career Corner. Ex-Crazy Eddie CFO’s 10 Tips for Advancing Your Accounting Career (Adrienne Gonzalez, Going Concern). Always trust a felon!


Tax Roundup, 4/4/14: Your Honor, nobody follows that law! And: extenders advance.

Friday, April 4th, 2014 by Joe Kristan

20120801-2Maybe that wasn’t the best argument, under the circumstances.  Things went badly for a California man yesterday who tried to tell the Tax Court how things work in the real world.

The man had claimed $5,309 in vehicle expenses for his real estate sales business.  Vehicle and travel expenses are subject to the special rules of Section 274, which requires corroborating records of the amount, time, place and business purpose of travel expenses.  The judge found the taxpayer’s evidence wanting (my emphasis):

Petitioner provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009. Petitioner, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents. Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. (While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135”, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.) Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense. Because petitioners failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

The IRS asserted negligence penalties for claiming an undocumented deduction.  The taxpayer tried to tell the judge that nobody does that stuff:

Petitioner did not argue reasonable cause or good faith. Instead, petitioner argued at trial that no one keeps records in accordance with the “IRS code”.

Well, OK, then, screw Section 274!  Well, no:

That argument is unpersuasive, and the section 6662(a) penalty will be sustained.

The IRS is serious about documenting business miles.  If you have them, keep a log, a calendar, or use a smart-phone app to record the time, place, cost and business purposes of your travels as you go.  If “no one keeps records in accordance with the ‘IRS code,'” no one is going to be happy with the results when they get audited.

Cite: Chapin, T.C. Summ Op. 2014-31


20130113-3Tax Extenders Legislation Advances in Senate (Accounting today):

 The Senate Finance Committee voted to revive almost all of the 55 tax breaks that expired Dec. 31, providing benefits for wind energy, U.S.-based multinational corporations and motor sports track owners.

Motor sports track owners have lots of friends in high places.

It’s not just motor sports lobbyists who did will in the Finance Committee.  Almost all
“expired” provisions of this lobbyist right-to-work vehicle were renewed, including the renewable fuel credits.  The only expiring provisions that actually expire are the credit for energy-efficient appliances and a provison for oil refinery property, so there remains some lobbying to do.

But wait, there’s more!  Tax Analysts reports ($link) that this Christmas in April bill includes a provision to “expand the research credit to allow passthroughs with no income tax liability to apply the credit, up to $250,000, to their payroll tax liability.”  It also would renew the reduction of the S corporation built-in gain tax “recognition period” at five years through 2015.

While the House still hasn’t acted on any of this, the passage of all of this stuff on a bipartisan basis would seem to indicate that something like this is likely to pass.  Still, Kay Bell thinks the House tax leadership may be reluctant to follow the Senate’s lead.

The reason Congress pretends these provisions are “temporary” is that under their rules, Congress can pretend that they will only cost as much as they will cost before they are renewed again, regardless of the probability that they will be renewed forever.  It’s the kind of accounting that would get us thrown in jail if we tried it with the IRS or SEC, but it’s just another Thursday in Congress.

Link: “Summary of Modified Chairman’s Mark.”


20091010-2.JPGKristy Maitre, E-Filed Return Rejected at Deadline? Don’t Panic

Paul Neiffer, Patronage Dividend Notices Can Be Sent by Email or Posted to a Website

Jason Dinesen, Accounting for the Work Opportunity Credit on an Iowa Tax Return 

TaxGrrrl, Taxes From A To Z (2014): T Is For Tip Income   

Leslie Book, ACA and Victims of Domestic Abuse (Procedurally Taxing)

Russ Fox, Yes, Online Poker Players Must Pay Taxes


TaxProf, The IRS Scandal, Day 330

William Perez, State and Local Tax Burdens as a Percentage of Income for 2011

Lyman Stone, Missouri Senate Passes Problematic Income Tax Cut Plan (Tax Policy Blog).  “Missouri’s state Senate this week passed a $621 million tax cut including a 0.5 percentage point income tax reduction and a special carveout to deduct up to 25 percent of business income.”

Howard Gleckman, Two Ways to Fix the Corporate Income Tax: Internationalize it or Kill It. (TaxVox).  I vote “kill.”


There’s a new Cavalcade of Risk up!  At Insurance Writer. Don’t miss Insureblog’s contribution about how those making health care policy don’t know what they’re talking about.


20120906-1Corporate Welfare Watch:

Iowa city prepares to give mystery company millions. (  “West Des Moines city officials have cued up $36 million in local and state tax incentives for a company, but won’t tell its citizens who that company is.”

Iowa senator calls BS on attempt to limit tax credits for fertilizer plant (

Iowa View: From wind to solar, clean power is good for Iowa (Joe Bolkcom, Mike Breitbach).  Green corporate welfare is still corporate welfare.


News from the Profession: Deloitte Declares Weekends Are Not For Working, Unless You Are Working (Going Concern)



Tax Roundup, 12/31/2013: So much for Iowa tax reform. And: last-minute charity!

Tuesday, December 31st, 2013 by Joe Kristan

ijlogoThere’s only so much you can do on one day to achieve last-minute tax deductions.  The markets are open, so you can harvest your tax losses.  The post office closes early, so if you want to mail a check for a deductible expense, get down there this morning.  You might want to review all of my 2013 year-end tax tips for some other ideas.

If you are both charitable-minded and deduction-minded, credit-card donations up to midnight tonight work.  Indulge me while I suggest a few good causes that can get you a charitable deduction:

Salvation Army, doing hard work with the homeless and lost and on hand to help at disasters, doing much with little.

Iowa Donor Network, the Iowa organization that gathers and allocates donor organs.

Institute for Justice, the non-profit that helps the little guy fight back against government’s bent on stealing their business or preventing them from making a living.  IJ is the outfit behind the battle against the IRS preparer regulation power-grab — it’s hard to imagine how the IRS would have been stopped without their good work.

The Tax Foundation, fighting the good fight for sound tax policy.

Reason Foundation, supporting liberty against all comers.

Alzheimers Association, fighting an awful disease.

Sertoma, little platoons working to prevent hearing loss through education and awareness.

Cornell College, my undergraduate alma mater.

Southern Illinois University, where I got my accounting degree.

Last but not least, The ISU Center for Agricultural Law and Taxation, sponsor of the Farm and Urban Tax Schools.

That’s it for our 2013 year-end tax tips, but there’s good stuff all year at the Tax Update!



William Perez, Last Day Deduction Ideas

TaxGrrrl, 13 Dramatic Year End Tax Strategies For 2013   


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.

So much for the Iowa alternative maximum tax.  Branstad says he’s “realistic” — abandoning idea of pushing for income tax changes in 2014, reports O. Kay Henderson:

Earlier this month Governor Terry Branstad was considering a plan to let Iowans keep filing their personal income taxes under the current system, or opt for a flatter, simpler system with fewer deductions. Branstad’s now abandoning the idea.

“I’ll be real frank to say that with the present make-up of the senate and particularly with the present chairman of the Ways and Means Committee, I doubt that we’re going to see anything significant on the tax front this year,” Branstad said during an interview with Radio Iowa.

The majority Senate Democrats, led by Joe Bolkcom, are obsessed with sticking it to “the rich,” meaning employers, and the Branstad plan fails to do so sufficiently.  As the Senate can block any tax proposal, there was never much hope for the Branstad plan.

As the Governor’s half-baked plan was going nowhere anyway, perhaps now he can start working for the sort of real income tax reform that is so long overdue in Iowa.  The current system is a rat’s nest of special interest breaks, feel-good provisions, complexity and high rates that pleases only lobbyists and string-pullers.  It discourages small businesses with unforgiving complexity while paying the well-lobbied to be our friends.

Let’s get rid of all of the special deductions for special friends of the politicians, and all of the feel-good deductions, and even the deduction for federal taxes.  Oh, and lets get of the Iowa corporation income tax entirely.  Let’s drastically reduce rates to 4% or less and make Iowa taxes easy to understand and pay.  Governor, embrace the Tax Update’s Quick and Dirty Iowa Tax Reform plan for all and see if the soak-the-rich crowd really wants to stand up for insiders, lobbyists, complexity, high rates, and high compliance costs.


It’s a dishonor just to be nominated, but Russ Fox can only choose one 2013 Tax Offender of the Year.  The recipient worked very hard to earn the title, and is quite deserving.


Tony Nitti, Tax Geek Tuesday: Does The Sale Of Property Generate Ordinary Income Or Capital Gain?  It depends on what you sell, and who you sell it to.


Scott Hodge,  Out With the Extenders, In With the New Obamacare Taxes (Tax Policy Blog).  In case you were getting excited about a new year.  It lists all of the Lazarus provisions that expire at midnight, and all of the new taxes that start at 12:01.

Kay Bell,  Expiring commuter tax break will cost public transit users


Robert D. Flach brings you his last Buzz of 2013!

Jason Dinesen lists his Most-Popular Blog Posts of 2013

News from the Profession.  Count Your Blessings For Not Being on These Horrible Inventory Counts (Going Concern)


I will take the rest of the week off to clear my mind for tax season.  Happy New Year, and see you on Monday!



Tax Roundup, 11/21/13: Would you trust a state legislator to spend your $54?

Thursday, November 21st, 2013 by Joe Kristan

I’m on the road today, so we’ll make this quick.

Sen. Bolkcom

Sen. Bolkcom

I can spend your $54 better than you can.  The Des Moines Register reports Iowans can get $54 tax credit; some want it used for roads,  The “some” definitely include politicians:

Many Iowans will be eligible for a new $54 tax credit when they file 2013 taxes, according to a calculation from the Department of Revenue, but a key Democratic senator says the money would be better spent fixing crumbling roads and bridges.

State Sen. Joe Bolkcom, D-Iowa City, chairman of the Iowa Senate’s tax-writing Ways and Means Committee, said Wednesday that Republican Gov. Terry Branstad has failed to provide leadership to establish new sources of critically needed road construction revenue.

“Critically needed?”  Maybe not.  I doubt if the Grand Avenue Bridge to Eternity would have been done faster if they had just spent more money on it.  In any case, the politicians’ need for cash is elastic and infinite, no matter how much they have to start with.  It bugs them when they already have your money, like the $54, and they have to give it back.


Andrew Lundeen, Kyle Pomerleau, The U.S. Ranks Poorly on Cost Recovery (Tax Policy Blog):

 It is common knowledge that the United States has the highest corporate income tax rate in the industrialized world, but it is less well known that our cost recovery system ranks poorly as well.

Currently, the U.S. tax code only allows businesses to recover an average of 62.4% of a capital investment (investments in machinery, industrial buildings, intangibles, etc.). This is lower than the average capital allowance of 66.5% across the OECD…

Ideally, businesses should be able to recovery 100 percent of their investment costs. We could achieve this by shifting to a system of full expensing (which allows complete write off of capital expenses in the first year) or introducing a system of Neutral Cost Recovery (which indexes the investment write-offs for inflation and a real discount rate).


I’d be happy if they’d just stop changing the rules every year.


Going Concern,  Baucus Proposal Would Give ‘Legal Authority’ to Regulate Tax Preparers.  Buried in with a bunch of other stuff, as expected.  If Sen. Baucus would look in the mirror, he’d see where the real problem with  the tax system is.  Maybe that’s why he wants to regulate preparers instead.

Cara Griffith, Hitting the Jackpot (Tax Analysts Blog)

Tax Justice Blog, Why Everyone Is Unhappy with Senator Baucus’s Proposal for Taxing Multinational Corporations

TaxProf, The IRS Scandal, Day 196

Jack Townsend, Fourth Circuit Reverse Tax Obstruction Conviction Because of Bad Instruction and Affirms Denial of Good Faith Instruction for False Claim Conviction.  Even tax protesters are entitled to good jury instructions.

Kay Bell, Mo’ Money tax franchisee gets 20 months in jail for tax fraud.


Best spam commenter name ever: “2011 Energy Tax Credits Day Diet Plan When Weight Loss” posted a spam to my spam box this morning.  I look forward to learning more about that plan. 


And the muskrats are furious.  Sentenced to 6 months, Beavers still swaggering (Chicago Tribune)

More tomorrow!



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.



Tax Roundup, 4/30/2013: Iowa due date edition. Send them your cash, so they can forward it to thieves.

Tuesday, April 30th, 2013 by Joe Kristan
Via Wikipedia

Via Wikipedia

Legislator insists that thieves get $11 million as price of property tax deal.  As Iowans pay their 2012 balances due on today’s state income tax deadline, they may want to take a moment to ponder how careful the legislature is about spending the money they are sending in.

The Des Moines Register reports that Senator Joe Bolkcom demands an increase in the Iowa earned income credit as the price of a property tax bill:

Sen. Joe Bolkcom, D-Iowa City, chairman of the tax-writing Senate Ways and Means Committee, spoke at a Statehouse news conference sponsored by The Coalition for a Better Iowa, which released a booklet with the stories of Iowans who have been helped by the earned income tax credit. About 200,000 Iowa working families receive the tax credit, which assists households with incomes under $45,000.

Senate Democrats want to raise the earned income tax credit from 7 percent now to 20 percent at a cost of about $55 million annually.

Both Sen. Bolkcom and the Register fail to mention the massive fraud rate of the earned income tax credit.  The Treasury Inspector General for Tax Administration this month reported:

The IRS estimates that 21 to 25 percent of EITC payments were issued improperly in Fiscal Year 2012. The dollar value of these improper payments was estimated to be between $11.6 billion and $13.6 billion.

Applying that fraud percentage to Sen. Bolkcom’s proposal will result in $11.5 million to $13.75 million in “improper” — mostly fraudulent — Iowa EITC payments.   Remember that the EITC is a “refundable” credit, which means that if it exceeds your tax, the state writes you a check.  It’s a spending program, a welfare program.

I would say it takes a special kind of legislator to demand $55 million in spending knowing that it’s an appropriation of at least $11 million to thieves, but really it just takes a run-of-the-mill legislator spending your money instead of his own.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.


Only somebody who doesn’t prepare tax returns would say something this stupid.  The TaxProf links to this from a University of Wisconsin academic:

 This Article analyzes the ongoing structural transformation by observing and explaining the advantages that accrue from pursuing social and regulatory objectives through the tax code. In particular, this Article identifies a number of legislative and normative advantages that tax-embedded policies offer.

The tax law has one important job: to raise revenue.  If this author had ever done business tax returns for a living, she would know what a challenge it is to simply determine taxable income.  If she had ever helped a client through an IRS audit, she would know how difficult it is for the agents to simply work through the accounting, let alone run a bunch of social programs on the side.  The author should be made to spend three years working at a storefront tax prep business to learn the chaos her views cause outside the faculty lounge.


Tony Nitti,  Overview Of The New 3.8% Investment Income Tax, Part 2: Passive Activities

Jeremy Scott, Baucus, the Marketplace Fairness Act, and Tax Reform (

Baucus’s shift to the right in the last few months (which people had assumed was positioning for the election next year) has antagonized more than just progressives.  It seems his Senate colleagues are growing frustrated as well. 

And that will severely hamper the chances that a major tax reform bill will make it to the Senate floor.


Judge Sentences Widow to Less Than a Minute of Probation in Tax Case (Accounting Today)

TaxGrrrl, Willie Nelson, Who Saved His Career And His House With The IRS Tapes, Turns 80

Nanette Byrnes,  Republicans pursue tax reform, and more  (Tax Break)


Brian Strahle,  STATE TAXES:  WHAT WILL MAKE YOUR COMPANY CHANGE – CHOICE or AUDIT NOTICE?  On not being in denial about your exposure to business taxes in other states.

Jack Townsend, a criminal tax defense attorney, offers some wise advise in  Tips to Avoid an IRS Criminal Investigation or, Worse, a Tax Grand Jury Investigation


It’s time for Robert D. Flach’s Tuesday Buzz!


Always heed tax policy advice from a violent cannibal boxer.  Boxer Mike Tyson TKOs Fox host with talk pro-tax talk (Kay Bell)

Martin Sullivan, To Balance the Budget: Tax Sex Appeal (  Yes. by all means cut my taxes.



Tax Roundup, 3/13/2013: Governor, legislators battle over who to give your money to. Plus: Education credit returns bog down.

Wednesday, March 13th, 2013 by Joe Kristan

GovBranstadI will fight for the right to tax you to subsidize other people.  Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant.  Radio Iowa reports:

“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”

Never mind the high possibility that the plant would have been built without our tax money.  Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders.  Never mind that political allocations of investment capital are always and everywhere unwise.  Forget the lost opportunities for taxpayers to spend the money on their own projects.  Jobs!

The Governor also hinted at darker forces opposing the tax credits, reports

And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.

So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers.  Who knew?

Prior coverage here.

In other bad state tax policy news, the Senate Ways and Means Committee Democrats advanced an increase in the Iowa earned income credit from 7% of the federal amount to 20%.  Unfortunately, it would also be a huge increase in the marginal Iowa tax rate of families working their way out of poverty.  The phase-outs of the credit create a hidden high marginal tax rate that punishes families emerging from poverty.


The EITC is a refundable credit, which means the tax man writes checks to folks with no taxes.  Naturally EITC fraud is rampant.



TaxGrrrl, Hundreds Of Thousands Of Taxpayers Thought To Be Impacted By Education Credit Snafu

IRS agent pleads guilty to charges resulting form selling out a whistleblower.  Jack Townsend has the scoop.

Kay Bell,  2013 tax filing season gets crazier for some H&R Block, TurboTax customers

Jason Dinesen,  Small Business Health Insurance Credit, Part 2

Elizabeth Malm,  Texas Considering Drastic Modifications to Margin Tax (Tax Policy Blog).  Good.

Patrick Temple-West,  Yankees embrace frugality to dodge tax, and more.  Who says taxes don’t influence behavior?

Jeremy Scott, Carl Levin Changed the Face of Tax Enforcement (

Howard Gleckman,  Taxes and Paul Ryan’s Budget (TaxVox)

William Gale, A Carbon Tax is a Win-Win for the Economy and the Environment (TaxVox)


David Brunori, Things to Read, Sites to Visit(  He shares some online resources, but tragically fails to mention the Tax Update.

Peter Reilly,  No Fans Of Sister Wives At The IRS ?   As far as I’m concerned, the possibility of consolidated individual returns should be all the argument needed against polygamy.

The Critical Question:  Why Is My Refund Short? (Trish McIntire)


News you can use.  Note to Drivers: All Wheel Drive Does Not Give You Superpowers, Just a Dangerous Overconfidence (Megan McArdle). 

So you think you’re having a bad busy season?  It could be worse: Upstanding San Leandro Accountant Finds Himself on Oakland’s Most Wanted ListGoing Concern has the news of law enforcement gone awry.




Tax Roundup, 1/25/2013: Only a few days left for IRA distribution mulligan. And: A $750 check for each Iowa household?

Friday, January 25th, 2013 by Joe Kristan

A proposal to refund part of the state budget surplus.  The Des Moines Register reports:

Iowa House and Senate Republican leaders today proposed to give a flat $750 to every Iowa household in an effort to return to taxpayers the state’s $800 million budget surplus.

The money would be returned to taxpayers in the form of a tax credit, said Senate Republican Leader Bill Dix, R-Shell Rock, and House Speaker Kraig Paulsen, R-Hiawatha.

20120504-1That seems pretty straightforward.  Better still to give it back as part of simplifying the tax code, but better that than just spending it.  Yet just spending it has its advocates:

Senate Democrats who control their chamber said that since it’s early in  the session they are open to talking about the Republicans’ proposal, but they have other ideas.

Sen. Joe Bolkcom, D-Iowa City, who chairs the tax-writing Iowa Senate Ways and Means Committee, said Democrats are interested in providing earned income tax credits for lower-income Iowa families and raising the threshold for filing state income taxes. He added that Iowa needs to invest more tax money to clean up dirty rivers and streams, repair crumbling roads and bridges, upgrade the state’s education system and make other improvements.

The earned income credit is a welfare program run through tax returns, with a tremendous rate of fraud.  It’s also a poverty trap.  The phase-out of benefits with rising income serves as a stiff tax on improving your income.  And spending doesn’t become something else just because you call it “investing.”

Elaine Maag,  Earned Income Tax Awareness Day (TaxVox)


Kay Bell reminds us that taxpayers who failed to make a 2012 required minimum distribution from the IRA have a January 31 mulligan.   The tax law imposes a stiff penalty on taxpayers who have reached age 70 1/2 who fail to take a minimum amount out by year end.  Taxpayers who failed to take their 2012 withdrawal last year can roll the RMD amount to charity by January 31 and avoid the 50% penalty.

Taxpayers who took an IRA distribution in December can also roll that into a charity by January 31 and avoid having the distribution included in 2012 income.

These provisions were part of the Fiscal Cliff tax bill, which extended the tax-free status of IRA rollovers to charity along with a bunch of other expired provisions.


Just because your bank is a country bank doesn’t make the banker a bumpkin.  Four Nebraskans have been charged with “structuring” — breaking deposits into chunks under $10,000 to avoid federal cash reporting requirements.  Federal law requires banks to report cash transactions over $10,000.  Folks who don’t want the government to know about their cash sometimes attempt to use multiple smaller transactions to fly under the radar; that’s illegal. reports:

 Randy L. Evans, 59, of Grand Island is charged in a 15-count indictment.  In the first 14 counts, it is alleged that between March 29, 2010, and Dec. 27, 2011, Evans structured financial transactions to evade reporting requirements when he made deposits in the amount of $210,381 at Five Points Bank. Count 15 charges him with structuring financial
transactions to evade reporting requirements when he made 449 transactions between Jan. 4, 2010, and Feb. 28 at Five Points Bank in the amount of $2,030,322.

Bankers are required to report suspicious transactions, and if you make yourself a regular, they’ll notice — especially in a small-town bank.


Regrettably, yes.  Libertarian writer Sheldon Richman breaks the bad news: just because the income tax is a bad thing doesn’t make it unconstitutional:

Where does this leave liberty’s advocates? First, we have to face the facts. Like it or not, the U.S. Constitution empowers the Congress to levy any tax it wants. Anyone is free to come up with a contrary interpretation, but the constitutionally endowed courts have spoken. Reading one’s libertarian values into the Constitution is futile. For better or worse, the Constitution means what the occupants of the relevant constitutional offices say it means.

In other words, it doesn’t matter if you think the income tax is unconstitutional if the IRS, the federal judge, the Marshals Service and the Bureau of Prisons think otherwise.  Fighting the income tax by not filing ruins your finances without hurting the Leviathan one little bit.


Luring and subsidizing your competitors with your tax money.  Left-side advocacy group Good Jobs First has released a report slamming “incentive” tax breaks like those used for two fertilizer companies in Iowa last year.  The report doesn’t mention Iowa’s programs, but it provides a depressing list of corporate bribery in other states, including subsidies to lure employers from Kansas City, Kansas across the river to Kansas City, Missouri, and vice-versa.  Their press release gets it right:

Interstate job piracy is not a fruitful strategy for economic growth, [report author Greg] LeRoy noted: “The costs are high and the benefits are low, since a tiny number of companies get huge subsidies for moving what amounts to an insignificant number of jobs.” LeRoy added: “The flip side is job blackmail: the availability of relocation subsidies makes it possible for companies that have no intention of moving to extract payoffs from their home states to stay put.”

For all the abuse, the organization’s recommendations are modest.  I would eliminate all such subsidies and replace them with a simple low-rate tax system for everyone.  The Tax Update Quick and Dirty Iowa Tax Reform would be a great start here.


TaxProf,  House Ways & Means Chair Proposes Mark-to-Market Tax on Financial Derivatives

IRS Asks Judge To Suspend Injunction Barring It From Regulating Tax Preparers

Jim Maule,  A Tax Question: So What Do You Do With Your Time?. A good discussion of the “material participation” rules that take on extra importance under the new Obamacare Net Investment Income Tax.

Anthony Nitti,  The Tax Impact of Obamacare On The Passthrough Income of Small Business Owners

Patrick Temple-West,  Firms keep stockpiles of ‘foreign’ cash in U.S., and more (Tax Break)

Joseph Henchman,  Tax Foundation and CBPP Agree: States Need Strong Rainy Day Funds (Tax Policy Blog)

Jamaal Solomon, Tax Organizer for Entertainers.  Independent entertainers who cross state lines can find their taxes complicated, so good recordkeeping is essential.

Robert W. Wood, Shhh, Home Office and other IRS Audit Trigger Secrets

David Cay Johnston, Missing Half the Cash (

Start your weekend early with a Friday Buzz from Robert D. Flach!

News you can use:  Stuff Creepy Accountants Like (Going Concern).  Wisconsin!


Tax Roundup, 12/26/2012: legislator wants a $310 million train set for Christmas.

Wednesday, December 26th, 2012 by Joe Kristan

Iowa’s legislators get $800 million to play with for Christmas. Naturally, many of them think they can spend it better than those of us who gave it to them, based on a Des Moines Register report today quoting a bunch of prominent state politicians.

For example, Joe Bolkcom, Iowa City Democrat and Chair of the Senate Ways and Means Committee:

“We have a silent crisis in the number of kids and the number of our children living in poverty in our state,” Bolkcom said. “One of my top priorities will be addressing that crisis as a matter of tax policy. We need to use some of this tax surplus to make a substantial boost in the earned income tax credit.”

Bolkcom also favors appropriating $20 million as a state match to help  secure an $87 million Federal Railroad Administration grant to establish passenger train service between the Quad Cities and Iowa City, a move he says would create hundreds of jobs.

That’s two awful ideas.  As we have pointed out, increasing Iowa’s earned income credit would impose a brutal combined effective income tax rate of over 50% on low income workers — rewarding dependency and punishing taxpayers for emerging from poverty.

20121226-1And for the passenger rail plan — that’s ten kinds of crazy.  With the Megabus making three daily runs between Chicago and Iowa City for no more than $39.50 — and for as little as $1.50 — it’s hard to imagine a less urgent priority than pouring $20 million into a $310 million federal-state boondoggle to establish rail service that will lose millions annually selling $42 tickets for slower service.

Unfortunately, none of the politicians quoted by the Register proposes using the surplus to overhaul Iowa’s dysfunctional and business-hostile income tax. There is a better way:  Lower the rates, simplify the system, repeal the job-killing corporation income tax, and eliminate the corporate welfare deductions and tax credits.  In other words, The Quick and Dirty Iowa Tax Reform Plan.

Related:  You’d better waste your $20 million, or we won’t waste our $80 million!


Fiscal Cliff Notes

Kay Bell,  With the Mayan end of world threat over, it’s time to focus on the fiscal cliff

Can I return it?  AMT, the Gift You Don’t Have to Wrap!  (Trish McIntire)


Paul Neiffer,  One Week to Go Checklist

Missouri Tax Guy, Can an LLC be Taxed as an S Corp

Jason Dinesen,  Dinesen Tax Greatest Hits – The 5 Most Popular Blog Posts of 2012

Scott Hodge,  Taxing Guns to Pay for Cops in Classrooms? A bad idea to fund another bad idea.

That’s the way to bet, anyway.  Sometimes the Cynics Are Right  (Russ Fox)

Loss carryforwards?  Why Santa Won’t Owe Any Income Taxes This Year (TaxGrrrl)

Robert D. Flach won’t let the post-holiday letdown kill his Buzz!

Because I want to finish reading the phone book first?  Why Not Read the Entire Sales Tax Statute? (Jim Maule)


Tax Roundup, 12/13/2012: Tax preparer deadline looms. Also: why some companies are happy with a bad tax law.

Thursday, December 13th, 2012 by Joe Kristan

As Year-End Deadline Looms, Independent Tax Preparers Continue Fight Against IRS Power Grab. (Institute for Justice).  IJ has prepared a two-minute video about their suit to stop the inane and futile preparer regulation program.

I wish IJ luck; if you are looking to make a last-minute charitable contribution, IJ is certainly a worthy cause.


TaxProf,   Fleischer: Not All Companies Would Welcome a Lower Tax Rate

Reaching an agreement to cut the corporate tax rate should be easy. Major figures from both political parties have expressed interest in reducing the tax from 35%, which is the highest rate among the country’s main trading partners. Corporations would generally benefit from paying less tax and having more cash to reinvest in new projects or pay in dividends to shareholders.

The 35% rate is more of a “sticker price” than a reflection of the average tax burden. Corporations can pay a lower rate by lobbying for special deductions and credits, employing aggressive transfer pricing strategies to shift profits offshore and structuring operations to minimize how much they pay in taxes in the United States.

You can see the same dynamic in Iowa, with its highest-in-the-nation corporation tax rate.  That’s just fine for the lucky and the well-lobbied, some of whom actually make money from the Iowa tax law through refundable tax credits, especially the Research Credit.  For a little guy without connections or lobbyists, it’s a great reason to set up in South Dakota.

Speaking of which:   Key Iowa senator questions tax-incentive programs (Quad City Times):

An influential state senator said lawmakers will have to take a harder look at the state’s tax-credit programs this session, including the economic development credits used to entice companies to build in Iowa.

Sen. Joe Bolkcom, D-Iowa City, who was reappointed to chair the Senate Appropriations Committee on Wednesday, held a Statehouse hearing on tax-credit programs Wednesday. He has been a vocal critic of the how the state uses incentive programs to compete against other states for economic development.

That will be a lot easier if it is accompanied by a drastic lowering of rates — or better yet, a repeal of the Iowa corporation income tax.  Yet there’s always a voice for breaks for those with connections — in this case Tom Sands (R-Wapello), Chairman of the Iowa House Appropriations Committee. From the story:

Sands said the people in Lee County and Woodbury County — for the most part — aren’t complaining about the incentives offered to the companies and are looking forward to the jobs they’ll bring.

That’s why it’s hard to get rid of these things.  Politicians point to the jobs they “create” by bribing companies to do what they would probably do anyway.  They don’t have to call press conferences for all of the anonymous businesses that never come to Iowa, or that never get started to begin with, because of Iowa’s expensive and byzantine tax law.

There is a better way:  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan


Fiscal Cliff Notes:

Roberton Williams,  Paying 2013 Dividends in 2012 May Save on Taxes but Not for Everyone:

For instance, that extra dividend income could throw some shareholders onto the alternative minimum tax. Some retirees could see more of their Social Security benefits subject to income tax. Some families with children will pay more tax as their child credits phase out.

While some investors would be hurt by the accelerated dividend payouts, many low- and middle-income taxpayers could benefit.

Christopher Bergin,  More Cliffs (

Cara Griffith,  Despite Revenue Growth, States Must Plan for the Fiscal Cliff (

TaxGrrrl,  Senate Can’t Nail Down Budget, Does Have Time For Fruitcake

Patrick Temple-West,   Corporate taxes on table in cliff talks, and more.  I don’t get a good feeling about these guys trying to rewrite the corporate tax in two weeks.

Paul Neiffer,   How Much Would A Gas Tax Raise?

Anthony Nitti,   While The Fiscal Cliff Keeps You Distracted, The AMT Will Rob You Blind


Russ Fox,  Ref Fouls Out:  “As always, it’s far, far easier to just pay the tax you owe…but that thought rarely occurs to the Bozo mind.”

Joseph Henchman,  Study: Toll Collection Cheaper Than Conventionally Thought (Tax Policy Blog).  If electronic tolling is cheap enough to run, it could supplement or replace gas taxes.

Tax Trials:  Tax Question May Determine Supreme Court’s Position on Same-Sex Marriage

Missouri Tax Guy,   Some Easy & Effective Ways to manage Personal Finance

Trish McIntire,  Saving Electronic Records:

Download and save your electronic pay statement to your computer every payday. Save a copy of the invoice anytime you order online. The same goes for all credit card and bank statements that aren’t paper. Once you have a system started, you can start duplicating the paper documents. A home scanner can be inexpensive and a lifesaver.

Once you’ve created a tax documentation system that works for you, don’t forget to back it up and to safely get rid of the paper documents.

If it’s worth backing up, it’s worth backing up twice.

Jack Townsend,   Reasonable Doubt – Explaining It to a Jury.  Best not to have to.

Kay Bell,   French actor Gerard Depardieu moves to Belgian tax haven.  Belgium has a top income tax rate of 50%.  When that becomes a “tax haven,” that tells you how bad France is.

Ungentlemanly:  Fourth Circuit Upholds Conviction of Gentlemen’s Club Owner (Peter Reilly)

Russ Fox,  Ref Fouls Out.  A group of rec-league refs set up an identity theft-based tax fraud scheme.  It worked great, until suddenly it didn’t.    Russ wisely points out:

All told, the four individuals involved in the scheme must make restitution totaling $200,000.  As always, it’s far, far easier to just pay the tax you owe…but that thought rarely occurs to the Bozo mind.

These guys ran their scheme for 12 years before it blew up.  The longer you do something like this, the closer your chance of getting caught approaches 100%.



Tax Roundup, 12/10/2012: Fund of Follies tax credits!

Monday, December 10th, 2012 by Joe Kristan

Tails.  We lose.   In 2002 Governor Vilsack signed into law a bill creating an Iowa “Fund of Funds” tax credit.  It’s back in the news:

Register Exclusive: Fund’s bailout costs Iowans $26 million

The Iowa Fund of Funds for startups never took off and a deal was needed to avoid a ‘train wreck.’

From the Des Moines Register:

A decade after the state tried to spark investment in young innovative companies, Iowa taxpayers will foot a $26 million bill — and potentially more — to meet the program’s obligations.

State attorneys reached an agreement in August to avoid a lawsuit from two lenders who backed the Iowa Fund of Funds, a program lawmakers created in 2002 to attract more venture capital investment in Iowa startups.

In August? And we’re just hearing about this now?  Maybe it’s because it’s an embarrassment to the entire Iowa political class that they just want to have go away.  While signed by a Democratic governor, it passed the Iowa House 90-3 and the Senate 39-5  — lots of votes from both parties there.  When the state is giving millions in new tax credits for fertilizer companies, it would poop the party.

Let’s set the wayback machine to one of the earliest Tax Update posts — number 48 of over 8,000 — to see what we had to say about the Funds of Funds when it was enacted:


…is the concept behind the venture capital legislation. A state-owned for-profit corporation will set up a “fund of funds” partnership to invest in venture capital pools. The venture capital pools are to be chosen based on their commitment of funds to Iowa.

Investors in the “fund of funds,” which we will call the FOF, will receive certificates maturing no sooner than 2005 entitling them to a tax credit. This credit will reduce their Iowa tax dollar for dollar to the extent the return on the FOF is less than a fixed return computed on the certificate. In other words, the investors in the FOF get the upside, but the state absorbs the downside – and even some of the upside, to the extent that there is a positive return lower than the amount set by the certificate.

At the time we received a note from Steven Ringlee, described in today’s Register story as “an architect of the program,” telling us that this was still a terrific deal for Iowa taxpayers because the bill also had a cap on investor return as well as a taxpayer-funded guarantee against losses:

In fact, you fail to notice that, due to the tax credit which provides full repayment security to Iowa taxpayers purchasing the preferred stock of the Fund of Funds, their required rate of return will be similar to that on medium-term governmental debt instruments.  In Oklahoma, where this plan was first implemented, the return on their Fund of Fund instruments (circa 1995) was approximately 8 percent.  In today’s environment, it will approximate 5 to 5.5 percent.  However, the average long-term rate of return on investments in venture capital limited partnerships has been in excess of fifteen percent over an extended period.  Oklahoma experienced a 19 percent positive return during the five year period from inception through 2001.

So how did those 15 percent returns work out?  From the Des Moines Register story:

“It’s been a disaster. As a model for creating jobs, it doesn’t work. … It’s turning into another bad deal for taxpayers,” said Sen. Joe Bolkcom, D-Iowa City.

Jeff Thompson, a deputy attorney general who helped negotiate the agreement, says Iowa taxpayers have always been on the hook for the program, originally authorized at $100 million and later limited to $60 million. This agreement reduces the potential costs and, perhaps more important, prevented lenders from cashing in up to $40 million in tax credits this summer to cover their loans, he said.

That sounds like a return of something less than 15%.  The Register story doesn’t quantify the losses.  Mr. Ringlee didn’t exactly rule out the possibility of losses in 2002, but he made them seem unlikely (my emphasis):


As a result, appropriate compensation-for-risk-assumed is in fact given to the State, the grantor of the contingent tax credits.  For what is likely to be zero cash outlay, the State of Iowa, (at the end of the FoF lifetime) receives all accumulated net profits above a nominal return in the range of 5.5%.  Of course, the probability of this occurring is directly related to the skill sets of the VC managers selected to invest the funds.  Because VC historical returns are in fact measurable and venture managers’ skills may be examined in detail, and because good managers tend to have consistent track records, the Fund should be able to select those managers able to deliver above-average results.  Hence, the Fund can improve its ability to deliver stellar returns to the State (the residual legatee) by carefully selecting and supervising its venture capital limited partnership managers.  It will do so through the judicious selection of a skilled, experienced “gatekeeper” fund allocation manager, a common practice in the venture industry.


Folks, when the government guarantees something, the proper assumption is that the guarantee will be called upon (Solyndra, anyone?).  If private investors aren’t willing to make a deal, they probably have good reasons.  If it’s a good company, private money will probably be there, if perhaps on stiffer terms.  And just because the guarantees are run through tax returns doesn’t make them somehow not spending.

Senator Joe Bolkcom  (D-Iowa City)– who was one of the few who voted against the program in 2002 — makes a good point:

Bolkcom said the state needs to rethink how it approaches economic development.

“The idea that we can create these third-party arrangements, where we turn over taxpayers’ money and not expect problems to develop, is folly. We have very little control after the law was created,” he said.

The best the state can do for economic development is to leave it alone.  The Quick and Dirty Iowa Tax Reform would get rid of all of the dozens of “economic development” tax credits, and do more for the Iowa economy than all of them.


TaxProf,  NY Times: Tax Arithmetic Shows Top Rate Is Just a Starter

Oh, Goody:  “Taxpayers and the IRS could be looking at three filing seasons in 2013 if Congress and President Obama fail to prevent the government from going over the fiscal cliff at year’s end, according to National Taxpayer Advocate Nina Olson.”  (Tax Analysts, $link)

Greg Mankiw,  Fiscal Cliff Fact of the Day:

As reported in the NY Times:

Even if Republicans were to agree to Mr. Obama’s core demand — that the top marginal income rates return to the Clinton-era levels of 36 percent and 39.6 percent after Dec. 31, rather than stay at the Bush-era rates of 33 percent and 35 percent — the additional revenue would be only about a quarter of the $1.6 trillion that Mr. Obama wants to collect over 10 years.

Like I say, the rich guy isn’t buying.

Gene Steurle,  Current Revenue Solutions Will Barely Reduce the Deficit.  (TaxVox)

Patrick Temple-West,  Fiscal talks spur charitable giving, and more

TaxGrrrl,  Obama, Boehner Reach Compromise?  No.

Scott Drenkard,  New Federal-State Rate Calculation in Full Fiscal Cliff/Obamacare Scenario (Tax Policy Blog)

Christopher Bergin,  ‘Small Ball’ — Obsessing about the Rich:  “Sticking it to rich people may play well to a populist theme, but it’s “small ball” and does little to address our fiscal problems or our broken tax system.”  (

Martin Sullivan,  Is the Charitable Deduction a Sacred Cow? (

So how are the tax increases working out for you? California Revenues Below Expectations (Russ Fox)


TaxProf,  Supreme Court Grants Cert to Decide Whether Estate Tax Marital Deduction Applies to Same-Sex Couple.  I predict the court will reverse DOMA.  If your taxes have been boosted by the denial of marriage benefits to same-sex couples, you should consider filing a protective refund claim; 2009 is the oldest year still open.

Kay Bell,  Supreme Court to review estate tax challenge to Defense of Marriage Act  GOP to introduce death penalty bill.  Apply it first to legislators who vote for new tax credits and I’ll be interested.


Great tool for understanding new net investment income tax regs: Cheat Sheets To The Obamacare Investment Income Tax (Anthony Nitti)

Peter Reilly,  Can Real Estate Professionals Beat The 3.8% Obamacare Tax ?


Jack Townsend,  DOJ Tax and IRS Entreaties to Join OVDP 2012:

These are in effect pleas / warnings to taxpayers to turn themselves in by joining OVDP 2012.  I suspect that the truth is that, if a significant number of taxpayers do not turn themselves in, the IRS will have limited ability to discover, investigate and prosecute criminally or civilly all of that dataset.  DOJ Tax and the  IRS are trying to convince taxpayers that the form of audit lottery they play going far now will have worse odds than it had previously.  Perhaps everyone involved will not suffer the consequences, but many will and, among the many that will, could be you.  And the consequences could be far worse than if you come clean now and get right for the past and going forward.

 If you really are a tax cheat, by all means consider using the OVDP program.  Still, it would probably be much more attractive if the IRS didn’t treat foot-fault violators as international tax criminals.


Robert D. Flach gets it right in WHY WE NEED TAX REFORM:

The purpose of the Tax Code is to raise the income necessary to run the government.  It should not be used to solve all the financial and social problems of the country.  It should not be used as a method of distributing social welfare program benefits.  It should not be used as a means of “redistributing” income among the “classes”.  The Tax Code is not Robin Hood.

It’s hard enough to determine taxable income, compute a correct tax, and remit it.  You can’t also ask Iowa tax authorities to administer filmmaking or venture capital.   And to expect the undertrained and undermotivated members of the shrinking IRS work force to administer industrial growth, social justice and, oh yeah, the health care system is folly.  And official policy.


Film Credits: putting Hollywood before your kids.

Tuesday, March 9th, 2010 by Joe Kristan

Iowa’s legislators may not be able to bring themselves to kill the scandal-ridden film tax credit program, reports the Quad City Times:

A three-member subcommittee of the Senate Ways and Means Committee will consider a bill this afternoon that was introduced by Sen. Herman Quirmbach, D-Ames, seeking to end the controversial tax credit program for film, television and video projects.
However, full committee chairman, Sen. Joe Bolkcom, D-Iowa City, said he expects lawmakers will move to suspend rather than eliminate the program before the legislature adjourns.
“My judgment is that there will be an attempt that will get support to suspend the credit, either to a year from now or potentially for a longer period of time than that,” Bolkcom said. “I think there


Harold Hill’s Film Credit Follies: where we stand one week later

Friday, September 25th, 2009 by Joe Kristan

hh44.jpgAt 4:56 p.m. one week ago, the Iowa Governor’s office issued a press release putting out the first word of how an obscure tax credit has become what one commenter calls, without overstatement, “among the most expensive mistakes in our state’s history.” A program touted as being way to “create jobs” for Iowans was revealed to be funding luxury cars for film producers and large cash payments to members of the producer’s families. None of the films financed by the “half-price filmmaking” program had adequately documented their expenditures, and only two had even turned in receipts.
As the scandal unfolded, we learned that the Iowa Film Credit program may have created a liability of $363 million, or about $121 per Iowan, thanks to $200 million of applications rushed through in the two months before an annual cap took effect. The Attorney General has discouraged hopes that the state can weasel out of the liability. Three top officials are out of their jobs, the Governor has suspended the program, and filmmakers are irate that they aren’t getting their free money as fast as they want it.
Now the optimists among us are hoping that Iowa is finally taking a hard look at it’s rats nest of tax-credit corporate welfare programs.
The politician reaction to the potential transfer of $363 million from Iowa to Hollywood is weirdly low-key. That’s because almost all members of both parties in the legislature voted for the disastrous film credit program or otherwise supported it. They have to find a way to be outraged without pointing the finger at themselves.
Republicans mostly try to pull this off by blaming mismanagement and calling for investigations, ignoring their role in setting up the programs. The official blog of the Iowa Republican party has only a tepid indirect reference to the scandal:

Today Republican Party of Iowa Chairman Matt Strawn issued the following statement criticizing Governor


Is $300 million enough to help California’s starving starlets?

Monday, September 21st, 2009 by Joe Kristan

The Iowa Film Credit Program isn’t as bad as we thought. It’s far worse. From The Des Moines Register:

Iowa’s bill for going to the movies could be a blockbuster: Up to $300 million in coming years, says an Iowa lawmaker.
In May and June, movie producers rushed to get $208 million in tax credits before a new spending cap began July 1, said Sen. Joe Bolkcom, D-Iowa City, who learned about the last-minute requests at meeting with state development leaders and lawmakers.
The state’s investment in film spikes to about $300 million after projects that are under way or completed are added to the mix, said Bolkcom and others familiar with the meeting.

This comes right after the Director of the Department of Economic Development resigned because of evidence that Iowa’s program to subsidize Hollywood was being looted by carpetbagging film companies. Abuses included the purchase of a Mercedes and a Land Rover, payments to relatives, and money being spent out of state in violation of the plan rules.
The looters lobby is springing into action to keep the action going:
On Saturday, Iowa’s Motion Picture Association and film industry leaders urged state leaders to allow existing tax credit projects to proceed.
“The suspension of the program during the audit is not the answer,” said a news release from the association announcing a Monday news conference. “There are many films currently in production and planning for production in the state later this year, and by suspending the production incentives, the state jeopardizes putting more Iowans out of work while we are facing the highest state unemployment since 1986, as well as discouraging potential future productions from considering Iowa.”

Yes, what will our starving Mercedes and Land Rover dealers do? It’s just been revealed that not a single film project so far has bothered to comply with the paperwork rules for the program, and yet they have the nerve to tell us we need to keep your money flowing to Mira Sorvino. In a better world, the only coverage they would get at the press conference would be with tar and feathers.
It would be surprising if the 4:56 pm Friday document dump announcing the Film credit scandal is anything more than the tip of the iceberg. Look for more to come. We’ll be all over it.
Prior Tax Update Coverage:
Other Iowa Blog Coverage:
Dave Swenson: Magic Beans, Tax Credits and Economic Development
Bleeding Heartland: Tramontina resigns over problems with film tax credits
Iowa Republican: Bad Poll Numbers + Major Scandal = Chaos for Culver
The Bean Walker links to a number of stories on the debacle.
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Hello, hangover!

Tuesday, August 18th, 2009 by Joe Kristan

The Iowa legislature has been on a corporate welfare tax credit spree in recent years. The state now has dozens of “economic development” tax credits. Foregoing taxes for favored constituents is hard to tell from spending; in fact, many of these credits are transferable or refundable, which makes them identical to spending.
As college students quickly learn, a good binge is merely the prelude to a good hangover, and the headache has set in, reports the Des Moines Register:

Tax breaks will take a $160 million bigger bite out of Iowa’s revenue this year than last, including sizable increases for movie productions and historic renovations, a state report released Monday shows.
The $478 million total projected cost of tax breaks – a 50 percent spike from the previous year – will place more stress upon an already troubled state budget, both Democrats and Republicans acknowledged.

To put this corporate welfare in perspective, the entire net receipts of Iowa’s highest-rate-in-the-nation corporate income tax is projected at $376.2 million for the current fiscal year.
Like many folks who wake up after a binge with a splitting headache and a stranger in the bed, the legislators are discovering the virtues of temperance:
“I think the report shows the need not only for a cap of these credits but also for continued scrutiny so these programs don’t break the bank,” said Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee.
Senate Republican Leader Paul McKinley of Chariton also called for more oversight of tax breaks, which he said are heavily overused.
“Any time government gets involved in picking winners and losers rather than treating everybody fairly and the same, it distorts the marketplace,” McKinley said.

Better wise late than never. Still, it’s worth noting that when these guys had the chance to close down the party, they sent out for more kegs. Consider Iowa’s film credit, perhaps the most outrageous special interest subsidy this side of renewable fuels. This credit was enacted in 2007 and has already risen to over $77 million in spending. Both Senators McKinley and Bolkom voted for the film credits, as did all but 3 of the 150 legislators.
Related: Film industry wants unlimited access to Iowans’ wallets
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