StateImpact: Idaho study reviews effect of tax policies on business

ersaunders@stateimpact.orgJuly 2, 2013 

  • About StateImpact

    This article was produced by StateImpact Idaho, a collaboration between Boise State Public Radio (KBSX News 91.5) and NPR that focuses on explaining how economic issues affect Idahoans. Visit stateimpact.npr.org/Idaho.

Idaho lawmakers have a new tool available to guide them in making tax policy decisions.

The Legislature's Office of Performance Evaluations presented a 38-page report to the Joint Legislative Oversight Committee in June. The study, a "Guide to Comparing Business Tax Policies," was requested by the 2012 Legislature.

The report focuses on a couple of main ideas: tax rates are not the only thing (or the most important thing) businesses consider when looking to expand in or relocate to Idaho, and tax-rate changes aren't directly related to business investment.

"Although businesses generally seek to maximize their after-tax rate of return, the link between tax costs and a favorable business environment is not direct," the Office of Performance Evaluation reports. "For example, businesses rely on tax-funded government services, such as infrastructure development, education and workforce training. When these tax-funded government services and other nontax factors are weak, they often become more substantial barriers to achieving policymakers' goals than unfavorable tax rates.

"Consequently, policymakers must balance the cost of lowering business taxes to incentivize investment while simultaneously adequately funding services that are also valued by businesses."

The report encourages lawmakers to consider the same nontax factors businesses take into account when shaping tax policy:

"Many interrelated factors determine whether a given state is an attractive place for businesses to invest. Economic performance and business investment hinge on the balance of many, often competing, tax and nontax factors."

Those factors include:

• Availability of a trained workforce.

• Climate and amenities.

• Education.

• Infrastructure.

• Labor costs.

• Market size.

• Proximity to waterways.

• Purchasing power, or business cost of living.

The Office of Performance Evaluation also came up with an interactive tool that allows lawmakers to compare Idaho's tax rates with other states and understand what happens to revenue streams if tax rates are changed.

Over the past decade, Idaho lawmakers have approved several sweeping tax policy changes. In the last two years, lawmakers cut the top tax rates for businesses and individuals, approved new business tax exemptions and eliminated the business personal property tax for most Idaho companies.

Lawmakers will likely consider more tax policy changes next year, as Gov. Butch Otter wants to oversee three straight years of tax cuts.

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