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September 2012 Policy Study, Number 12-11

   

Orascom or OraScam? Corporate Income and Property Tax Reform Needed

   

The Way Forward in a Global Economy

   

 

From a free-market, capitalist perspective it is problematic that the company played Iowa and Illinois off against each other, seeing who would offer the best tax deal and incentives. Illinois lost because of their highly dysfunctional state government and state budget situation. Orascom Construction Industries (OCI) said that they did not trust the tax structure and potential future tax increases if they located in Illinois, and therefore came to Iowa, but not before negotiating the best deal possible.[28] It is also problematic that so many companies find it necessary to solicit special tax incentives and expansion deals from state governments.

 

As recently as September 24, the Iowa Economic Development Authority approved special loans and deals for the following companies:

 

• Polaris Industries (ATVs and motorcycles) received $1.5 million in state tax credits and an almost $400,000 forgivable loan to expand in Spirit Lake.

 

• HNI Corporation received almost $300,000 in state tax credits for an expansion in Muscatine.

 

• Unverferth Manufacturing, based in Ohio, received a $200,000 forgivable loan and $400,000 in tax credits for an expansion in Shell Rock.

 

• MSI Mold Builders, in Cedar Rapids, received only $144,000 in loans and only $42,000 in tax credits.[29]

 

If one is questioning the Orascom deal, one must also question the deals for these companies.

 

As we have said before, Governor Branstad is working hard to turn the Iowa economy around, building on long-term relationships with the Chinese government and others.[30] He is working to get Iowa products sold internationally and to bring new companies in. He is trying to make good on his campaign promises. The Iowa Fertilizer Company plant is a result of these efforts.

 

The issue is not that Orascom is foreign owned, with the profits going overseas to the Middle East. American companies – from John Deere to Microsoft – have factories in other countries and make profits there. We live in a global economy. This is a good thing, though it is understandable that questions are being raised about ownership and management philosophy. If the OCI management is smart, they will act quickly to pro-actively address these questions by making it clear that they intend to be a long-term member of the community, not only hiring local senior management, but participating in and donating to traditional American local programs and organizations.

 

The issue is that attracting new companies and new jobs to Iowa should not involve the government picking winners through state taxpayer subsidies and federal loan programs, but should be based on lower taxes and a level playing field for all. In reviewing the Iowa Economic Development Authority agendas for the last year, the number, size, and type of companies receiving aid and special tax deals is extensive.

 

In addition to those just awarded in September, Denso Manufacturing, Black Cat Blades, Brownells, Cambrex Corporation, Outcomes Inc., Rousselot, Sedgwick Claims Management Services, Pioneer, John Deere, Cedar Valley Techworks, Data Builder, LMS North America, Midland BioProducts, BIV Inc., Kemin Industries, Centro Inc., Proplanner Inc., Visenergy Inc., and many, many others received a wide variety of tax credits and loan guarantees. Enterprise zones were addressed in Howard, Mitchell, Shelby, and Pottawattamie Counties, among others.

 

Certainly the list of companies applying to and receiving special incentives from the Iowa Economic Development Administration is long and varied. It reads like a who’s who of both small and large businesses in Iowa. If your company’s name is not on the list of those receiving special tax credits and incentives – and if you are the CEO or owner – you are not doing your job.

 

   

 

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