We can do better
By Arlen Wittrock
Idaho, we can do better. Pocatello, we can do better.
A Department of Labor report issued last week shows that Idaho leads the nation with the largest percentage of its workers earning the minimum wage. Another Department of Labor study released in December indicates that workers in Idaho have the lowest average wages, salaries, and take home pay among the 50 states.
A 2012 report from the U.S. Census Bureau ranks Idaho per pupil education spending as the second worst in the nation for the second year in a row. Idaho, we can do better.
Idaho’s current personal property tax system continues to be a major obstacle to attracting those businesses that provide higher paying jobs. The lack of these businesses and their employees results in lower tax revenues for our state, communities, and school districts.
Our current personal property tax system that discourages larger businesses with good paying jobs and benefits from locating here does not need to continue. A newly revised, compromise proposal to phase-out the current personal property tax system over a seven year period is being presented to the Idaho Legislature. Under the proposal, local units of government would have those revenues they currently receive from personal property taxes reimbursed by the state from money received from the growth in revenues to the state’s general fund.
In addition, it is estimated that for every dollar of the personal property tax that is eliminated, the state will receive six dollars in new income through the resulting new investments in equipment and employees.
The personal property tax, as it is currently structured in Idaho and in our Pocatello community, is a major disincentive to economic development and job growth. It discourages many larger businesses that must rely on expensive equipment from considering our Pocatello community as a location for their business.
When we don’t attract those larger businesses with their higher salaries and wages for their employees, we lose tax revenues needed for our schools and for needed local government services.
The personal property tax was originally created to tax household items such as pots and pans. That tax was eliminated long ago. Just over a decade ago, the personal property tax was eliminated on agricultural equipment. Unfortunately the tax remains today on the very types of businesses – those businesses with higher paying jobs — that we most want to attract to our state.
The businesses negatively affected the most by Idaho’s personal property tax are manufacturers, especially those that must rely upon the use of expensive, high tech equipment as their means of production. These are also businesses that could easily locate in one of the other 49 states or elsewhere in the world.
It has been said that these businesses can simply raise their prices to pay for the personal property tax. That is a fallacy. In fact, businesses that must rely on expensive equipment to manufacture today’s high tech electronic components must lower their product prices every year in order to remain competitive in the world market. Fixed costs, such as the personal property tax, make that task more difficult.
For over 30 years I have worked in public affairs and economic development. The business world has changed greatly during that time becoming more and more competitive in a global market. I have been involved in many location decisions made by large companies. A business will not and cannot locate or remain in a community where it is not cost competitive. The personal property tax stands as a major barrier to more successful economic development in Idaho and here in our Pocatello community.
Idaho and Pocatello, we can do better. We can attract more businesses with higher paying jobs. We can generate more needed tax revenues to support government services. We can raise more money to spend on education. We can improve our national rankings when it comes to average wages, salaries, and per pupil education spending. But an important step in doing so is the elimination of the personal property tax and the resulting attraction of more good businesses with higher paying jobs.
Arlen Wittrock of Pocatello represents Southeast Idaho on the Idaho Economic Advisory Council and is a member of the Board of Directors of the Associated Taxpayers of Idaho.
Let us not forget we were told the same thing this article explains back when the legislature passed a bill eliminating property tax for corporation. Property tax at that point in time payed for education in Idaho, but it was substituted for a one penny sales tax that didn’t meet the bill. Millions of dollars were taken from the general fund and was still short. The Great Recession didn’t help and public education received less money from the state.
Teacher’s salaries were cut, levies were passed to compensate and individual property tax raised. My property tax increased by over one third.
Now legislatures are feeding us the same line about the individual property tax. If this is passed Idaho will slip from second to last to the very bottom. Idahoans will be expected to pick up the slack with higher taxes and increased registration.
Then explain, please, Arlen, why you have not used your influence over the years to bring more viable manufacturing into Bannock County? Why has the economic development of Pocatello been based on service sector jobs and not manufacturing? Why have manufacturers who wish to locate here been turned away? Why Arlen Why?
Hi Mark, I have always been a strong advocate for bringing more manufacturing and technology oriented businesses who offer good paying jobs and benefits to the Pocatello community. Unfortunately some public policies, such as the high personal property tax cost to these businesses, have been a significant disincentive for these businesses to locate here. I personally have worked for three major manufacturers in the Pocatello community over the past 15 years and have been a strong advocate for them and other manufacturing businesses. Of course, as you know, not every public official in our community has agreed with my philosophy in this regard.
Politicians and elected officials by and large do not understand economics.
The reality is legal entities that have a corporate veil never do pay taxes. Whether it is an S-Corp, LLC, etc., businesses collect taxes. They do not pay them regardless of which base you are talking about be it sales, property, etc.
It has been my experience economic development practioners chronically overstate the economic multiplier and/or impact business entities can have on a local economy in the name of granting, not so much reduction in tax collecting responsibilities, as actual subsidy to reduce risk of their investment.
I had the opportunity to interview the author of the Great American Job Scam as part of my thesis in graduate school.
The US currently averages 30 subsidy programs under the auspices of job creation per State. Yet, overall job creation is modest and average wage and hours per job is extremely low.
If you do a forensic accounting of subsidy programs in terms of infrastructure abatement, tax incrementing districts, etc; since these mechanisms were introduced in the rural South around the 1920s and 1930s to where they have evolved today; you’ll find the individual and vested citizens regardless of region pay for the investment of business, cover its risks for location, and eventually have to pay for the external costs of its presence and eventual abandonment of a community.
I agree there needs to be restructuring of taxation as well as evaluation of tax bases of adequate scale in Idaho for a number of reasons. However, we need to be very wary of calls for tax restructure which is “code” for business risk transferrence from the business entity seeeking to locate in a community by passing all external and costs of risk on to the citizenry.
Pocatellans I’m sure have a good memory of Ballard and now Hoku as illustrations.
Businesses locate to an area when it makes business sense to do so, not exclusively for reasons of their responsiblity as tax collectors as opposed to tax payors which politicians and elected officials do not grasp.
We need to attract companies that pay well because they invest in the workforce to boost productivity and assume the appropriate risk as a business that wants to vest itself to the community which transcends taxation.
Pocatello has tremendous potential. The problem is we have practioners of proven economic development theories that do not work and leadership void of vision and practical understanding of how to leverage the regional assets of two major universities that export more graduates and counties that graduate more than 90% of high school graduates that are exported to other colleges out of state where they can actually apply their education as opposed to Idaho where our political leadership does not believe in education or an economic base that requires and education.
As long as the Idaho GOP reigns supreme, Idaho will continue to aspire to medicority as evidenced by the Idaho GOP economic record in Idaho.
Jayson,
Am I reading you correctly that you are suggesting something akin to a flat consumption tax, and phasing out the corporate tax altogether?
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