Earlier this week, presentations were given in the Senate Local Government and Taxation Committee regarding the repeal of the personal property tax. The hearing was to receive input on the Entin Study, commissioned by the Idaho Association of Commerce & Industry (IACI) in 2007 to determine the impact of repealing the tax, which, for example, requires businesses to assess and report the value of items owned by the business.
The tax is estimated to raise $129 million annually for counties and various taxing entities. Efforts in the past to repeal or reduce the tax have been opposed by local governments. However, the idea has surfaced this legislative session with Gov. Butch Otter asking that the tax be phased out over the next four years.
Testimony at the hearing was confined to a pair of witnesses finding fault with the study. Stephen Cooke, a retired University of Idaho agricultural economist, and Mike Ferguson, director of the Idaho Center for Fiscal Policy, who recently retired as the state’s economist, both said the study is flawed, won’t stimulate business expansion and the study addresses a problem that does not require a fix.
The group that sponsored the study, IACI, was not asked to testify. But Alex LaBeau, president of IACI, defended the study to IdahoReporter.com and took issue with Cooke and Ferguson.
“If you listen very carefully,” said LaBeau, “they (Cooke and Ferguson) said, ‘Well, it does have an affect on creating new jobs, we just don’t think it will create as many as they say.’ If we know that there’s going to be an economic benefit associated with this, then we’re just arguing over how much.”
LaBeau also said that Cooke and Ferguson are more interested in maintaining the status quo with government funding, rather than looking for reforms. They believe “any money you take out of government is bad, which is typical for Cooke and Ferguson.” They consider it “lost revenue.” LaBeau, conversely, believes “there is going to be an economic benefit associated with doing it.” The Entin Study, for instance, says that every $1 drop in the tax would result in increasing the after-tax income of Idahoans by $6. Cooke calls that claim “beyond incredible.”
The IACI president also feels there is a benefit to repeal the tax beyond the economic benefit. He calls it a “bad tax” because “It’s not transparent, it’s not administered fairly, and it’s something that is problematic not only for local government, but problematic for business to keep track of. That’s why we got rid of it on individuals, that’s why we got rid of it on ag, that’s why we got rid of it on insurance, it’s why we got rid of it on medical. It’s a bad tax and it’s time to get rid of it. That’s the fundamental reason we want to get rid of it.”
The Senate committee chairman, Tim Corder, R-Mountain Home, says he will give LaBeau a chance to testify at a later date, but did not specify when that might be. “When the opportunity comes,” said LaBeau, “we’ll take it.” The IACI president would not speculate on why he was not asked to testify at the same hearing as the two critics of the study.
Cooke believes the study is faulty because he says decreasing the tax base at a time like this is “the wrong long-term strategy.” He said lowering the tax rates will not stimulate much business. “It’s very often touted that if you lower taxes and lower tax rates, it will stimulate business. My take is that it’s a form of candy store economic development, where businesses line up for lollipops that spoil their dinner.”
Ferguson said the study reminds him of the old saying, “If it seems like it’s too good to be true, then it probably is.” And Ferguson pointed to a report by the Tax Foundation, which ranked Idaho 18th in the nation for business climate and second for property tax policies. “For the half-decade preceding 2011, we consistently ranked in the Top 3 (for property taxes),"Ferguson said. "That means Idaho has one of the very best property tax systems in the nation from a business perspective—which begs the question, what exactly is the problem we're trying to fix?"
LaBeau feels confident in the study, and says it has been properly vetted by Don Holley, a professor in economics at Boise State University. LaBeau says that Holley “didn’t see any problems with the study or the methodologies in there.” In a letter to IACI, Holley praises the report, but says the results are not communicated very well and that Entin used a sophisticated technique to come up with the results. Holley says the report may be hard for some lobbyists or legislators to understand.
The conclusion to Holley’s letter says in part, “I have never seen such a sophisticated, supply-side model, used for analysis at the state level.”
LaBeau was in the committee hearing during both Cooke and Ferguson’s testimony, and says he wasn’t that surprised about their views on the issue. “I think Cooke’s background speaks for itself. He’s always been of that particular ilk. He started getting into the wage-gap issues and things like that, and he comes from the particular perspective. So, that’s not terribly unusual.”
The state rankings that Ferguson cited are something LaBeau will respond to when he is allowed an opportunity to testify. “I think when I do have the opportunity to report, there were some things in the state rankings that Ferguson brought up … he didn’t give them the whole report, because there is a section on personal property tax in there and I think that the committee will find it very interesting to see what the full report says about that as well.”
LaBeau doesn’t know if Cooke and Ferguson changed any minds on the issue, but says if you listen carefully to what they said, the main disagreement isn’t that repealing the tax will or won’t have an economic benefit, but rather, how big the benefit will be.