The Legislature’s Office of Performance Evaluations presented a 38-page report to the Joint Legislative Oversight Committee this morning. 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 most important thing) businesses consider when looking to expand or relocate in 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. 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.” — Office of Performance Evaluation
The report encourages lawmakers to consider the same non-tax factors businesses take into account when shaping tax policy.
“The effects of tax rate and policy changes cannot be understood or predicted in isolation from nontax factors. 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.” – Office of Performance Evaluation
- Availability of a trained workforce
- Climate and amenities
- Education
- Infrastructure
- Labor costs
- Location-specific profits (before tax considerations
- Market size
- Proximity to waterways
- Purchasing power (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 last 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, they approved new business tax exemptions, and this year legislatorseliminated the business personal property tax for the vast majority of Idaho companies.
Lawmakers will likely consider more tax policy changes next year, as Gov. C.L. “Butch” Otter wants to oversee three-straight years of tax cuts.
