Idaho just gave a tax break to one of the biggest companies in the world

Idaho just gave a tax break to one of the biggest companies in the world

by
Dustin Hurst
July 9, 2016
Dustin Hurst
Author Image
July 9, 2016

The Dow Chemical Company is about to set up shop in Idaho, thanks at least in part to a generous tax break provided by Gov. Butch Otter’s administration.

The Idaho Department of Commerce announced this week Dow will set up a styrofoam brand insulation manufacturing facility in Burley. A purported 21 new jobs will be created in the Magic Valley.

Otter, a longtime advocate of corporate subsidies to draw businesses to Idaho, applauded Dow’s decision in a prepared statement Wednesday.

“Dow’s decision to build in Burley speaks volumes about the quality of our workforce, the business-friendliness of our state and communities, and the great diversity that we are developing in Idaho’s economy,” Otter said.

The tax break, though, helps reveal Idaho’s generous corporate subsidies.

The Department of Commerce confirmed to IdahoReporter.com this week, as part of the state’s Tax Reimbursement Incentive program, Dow will receive a 24 percent break on its income, sales and payroll taxes for nine years.

If Dow meets certain income and benefit thresholds through the deal’s duration, the state will reimburse to the chemical giant a total of $617,000. That’s almost $30,000 per job.

According to Forbes magazine, Dow is third-largest chemical company in the world. The company employs more than 49,000 workers across the globe and is valued at more than $59 billion.

Since the Legislature wrote the law in 2014, the Department of Commerce has used the TRI program to provide tax breaks for numerous companies, including two luxury hotels.

One such deal, a $6.5 million tax break similar in design to that provided Dow, sparked a lawsuit that challenges the constitutionality of the TRI program. A few months after the Otter administration signed the deal, to benefit human resources company, Paylocity deal last fall, Employers Resource founder George Gersema filed suit.

Employers Resource, founded in 1985 by Gersema and his wife Mary, competes directly with Illinois-based Paylocity, which promised to bring 500 jobs to Idaho in exchange for the tax deal.

After announcing the suit, Gersema called the program bad public policy.

Others criticize the program and characterize it as corporate welfare.

Economics professor Antony Davies, who teaches at Duquesne University in Pittsburg, Penn., told IdahoReporter.com Friday said the tax breaks favor special interests and big businesses.

Politicians“have a built-in incentive to aim efforts like this at big businesses,” Davies said. “The politician can then point to [a tax deal] and say, ‘look what I brought to my community.’”

Though big businesses can impress by claiming that they’ll add a greater number of jobs, Davies said, giving across-the-board tax cuts to all companies in Idaho could generate similar amounts of jobs. However, he points out, equal treatment of all businesses wouldn’t give politicians a trophy to show voters.

Davies is concerned that politicians’ reliance on big businesses for job growth might put Idahoans’ hope and livelihood in too narrow of a funnel. He likened the scenario to an individual who invests her retirement funds in a single stock. Though good times may come from that investment, bad times can wipe out wealth quickly.

“That’s the exact same thing that happens when you focus your attention on big firms,” Davis said.

He added, special tax deals can create another problem. Instead of a simple, easy-to-understand tax code, the special breaks for select companies or economic sectors can complicate matters for all businesses, without providing much economic yield.

“All of the sudden, you are going to have special interests lining up at the Capitol,” Davies explained.Businesses “want to tweak the law in their favor.”

And while select favors bestowed to specific businesses might make for the occasional triumphant press release from a proud politician, the professor suggested the complex tax code can fall flat in spurring job growth.

You open a door to politicians using this in the future to benefit special interests,” the professor said. “Then all you have is a very complex system of tax cuts in place that aren’t doing anything except lining the pockets of special interests.”

To promote sustainable, market-based growth, Davies suggested policymakers cut taxes across the board and examine the state’s regulatory environment. A web of counterproductive regulations can hamper a business's efforts to set up shop in any state.

“The regulatory environment, which we don’t talk about that much, can have as much of an impact as the tax rate,” he said.

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