Three days after proudly announcing the largest set of tax incentives Iowa has ever offered to a corporation, Governor Terry Branstad criticized President Barack Obama’s “penchant for trying to pick winners and losers in the marketplace.”
The Des Moines Register published a guest editorial by Branstad on Saturday. His main point: President Obama has mishandled the economy, while Governor Mitt Romney offers a new and better direction, based on his private sector experience. It’s a standard Republican perspective, but I was shocked to see the governor say this.
In Iowa, we know a thing or two about building success with our own two hands. Hard work is in our blood. It’s our way of life. We don’t look at our farms or our factories or our businesses and say, “Look what the government built.” But government is at the center of President Obama’s world view. He believes that the American economy should be directed, to some large degree, by Washington. “If you’ve got a business,” he recently said, “you didn’t build that. Somebody else made that happen.” By “somebody else,” he meant government. […]
Obama also has a penchant for trying to pick winners and losers in the marketplace, though his investment strategy leaves something to be desired. Billions of taxpayer dollars were wasted on a bungled energy program, with the now bankrupt Solyndra serving as the most famous of the program’s failures. But these losses pale in comparison to the wasted $1 trillion stimulus package that was supposed to get Americans back to work. Instead, its primary accomplishment was to thrust them ever deeper in to debt.
Now the president seeks reelection. His plan to address the ongoing economic malaise? A second stimulus and more government investments in private industry. More debt. More picking winners and losers.
That would sound a lot more convincing if Branstad hadn’t called a press conference on September 5 to brag about enormous government assistance to the Egyptian company Orascom Construction Industries. For the sake of a couple thousand temporary construction jobs and 165 permanent jobs at a new fertilizer plant, Branstad and Lee County officials agreed to offer: more than $100 million in state grants, loans, and tax incentives; $133 million in local property tax exemptions; and more than $1 billion in federal tax-exempt flood recovery bonds.
This Iowan calls that picking winners and losers.
During his widely-criticized speech in July, Obama was referring to publicly-funded infrastructure (“roads and bridges”) when he commented, “You didn’t build that. Somebody else made that happen.”
In contrast, direct support from the government was the key factor in Orascom’s decision to build in Lee County. Branstad told reporters, “We were able to land this project by the skin of our teeth.” Without doubt, “somebody else” besides the Orascom executives and shareholders made that happen.
Creative deal-making for the benefit of one company is nothing new for Branstad. Economists Peter S. Fisher and Alan H. Peters described one of the biggest incentives packages from the governor’s earlier time in office (pdf).
In early 1994, IPSCO steel corporation, which had been negotiating with several states regarding the location of a new steel mill, was offered a $75.6 million package of incentives by the State of Iowa if the company located its plant along the Mississippi River in Muscatine County, Iowa. The package included several new incentives available only in the “Quality Jobs Enterprise Zone” created especially for IPSCO: a complete exemption from local property taxes on all manufacturing machinery and equipment in IPSCO’s plant, exemption from paying sales tax on construction materials and services, and a 10 percent investment tax credit. The package also included incentives from programs already in existence: a $1.5 million grant from a state program to build access roads, a $1 million forgivable loan from the Community Economic Betterment program, $0.5 million from the state’s Economic Development Set-Aside Program, a $1.2 million job training agreement (under the “260E” program) with the local community college, and creation of an economic development TIF (Tax Increment Financing) district that would divert almost all of the property taxes on the building over the next 10 to 12 years to retire bonds issued to pay for plant construction costs.
This is not the end of the story. The county government agreed to cover about $1.5 million in additional infrastructure costs, and IPSCO also benefited from the New Jobs Tax Credit program, providing corporate income tax credits based on the 300 new jobs promised. Furthermore, the company’s bottom line was undoubtedly enhanced by Iowa’s corporate income tax system which, despite a high 12 percent marginal tax rate, imposes very low taxes on corporations such as IPSCO that export most of their output. This occurs through the use of single-factor apportionment, whereby a firm’s total U.S. profits are apportioned to Iowa solely according to the percentage of total sales that are destined for Iowa.
This Iowan calls that picking winners and losers.
By the way, last month an exasperated Branstad complained to Radio Iowa about Romney’s stand against extending the wind energy production tax credit.
“It needs to be continued, not forever, but it does need to be continued for a while and the result is it’s been a very good thing for Iowa in terms of 20 percent of our energy is now generated by wind,” Branstad said. “We have a lot of farmers that receive rent from having wind turbines on their property and we have a lot of jobs associated with it.” […]
“They don’t understand,” Branstad said. “You’ve got a bunch of people that have put that website together that are bunch of east coast people that need to get out here in the real world to find out what’s really going on.” […]
Radio Iowa first asked Branstad if he hoped to talk directly with Romney about this issue and Branstad said: “He needs to be educated as to how important this is.”
But governor, Romney’s position is clear: instead of “picking winners and losers,” the federal government should give equal tax treatment to various energy technologies.
Then there’s the nuclear power bill Branstad wants the Iowa legislature to approve. Drafted for the benefit of MidAmerican Energy, this bill would exempt that company’s nuclear reactor project from various rules and standards the Iowa Utilities Board applies to other kinds of proposed power plants.
I understand why Romney’s policy agenda appeals to Branstad. Both Republicans would reduce government regulation of business and shift toward a more regressive tax structure by lowering income taxes on corporations and wealthy individuals.
What I can’t understand is how Branstad is able to keep a straight face while bashing Obama for “trying to pick winners and losers in the marketplace.”
Any relevant thoughts are welcome in this thread.
P.S. – I can’t let this slide.
But these losses pale in comparison to the wasted $1 trillion stimulus package that was supposed to get Americans back to work. Instead, its primary accomplishment was to thrust them ever deeper in to debt.
The stimulus cost $787 billion, not $1 trillion. Besides creating or saving millions of jobs, it also reduced taxes for most Americans and prevented deeper cuts in state government services affecting millions of people.
Final note: Branstad’s Des Moines Register editorial described “Obamacare” as a “$2 trillion federal takeover of the health care industry.” Reasonable minds can differ on whether the 2010 health insurance reform law was good or bad policy, but by no stretch of the imagination can support was it a “federal takeover.” Yes, there are new federal regulations, but no, the federal government is not seizing control of private insurers, hospitals, doctors’ practices, medical equipment manufacturers, or pharmaceutical companies.
UPDATE: At his regular weekly press conference on September 10, Branstad defended the deal with Orascom.
There is a big difference between what Iowa is doing and what the federal government is doing in offering aid to businesses, the governor said. He views the Obama administration as creating regulatory barriers that make it difficult for businesses to thrive, while he contends he wants to do everything possible to pave the way for businesses to succeed. He cited the plans by other Midwest Republican governors that are trying to attract jobs, and he believes Republican president nominee Mitt Romney will support those efforts.
Branstad said the Lee County project is supported by the agriculture community, Iowa businesses and state lawmakers.
“Lee County is not exactly a Republican stronghold. I just want to say that I am appreciative that everybody has worked together on this. The best solution is to get our tax structure to be more competitive for everybody,” Branstad said.
I don’t see the “big difference” here. Although Branstad may want “to do everything possible to pave the way for businesses to succeed,” there is no way Iowa could afford to offer those kind of incentives to every company that promised to create 165 permanent jobs in Iowa.
SECOND UPDATE: More Branstad from that September 10 press conference.
“Illinois is the loser and Iowa’s the winner,” Branstad said, laughing. “That’s the point. Illinois is the loser and they’re the loser not just because of the incentives. They’re the loser because of the way they have mismanaged their state’s finances for too long.”
At his weekly news conference this morning (find the audio here), Branstad quoted Indiana’s Republican governor who has said being neighbors to Illinois is like “living next to The Simpsons.” Branstad also stressed that about half of the promised state incentives to the Egyptian company will only be extended if the legislature fails to embrace his proposed reduction in corporate taxes and commercial property taxes. If the legislature fails to do so, Branstad has promised the company $50 million in state tax credits.
True, Iowa has managed its finances well compared to most states in recent years. You wouldn’t know that from the tales Branstad was spinning during the 2010 campaign.