Department of Commerce Director Jeff Sayer says he has a real “game changer” for Idaho. It’s a proposal that would allow businesses to recoup the sales, income and unemployment insurance taxes they pay IF they do certain things stipulated by the state.
The proposal leaves me curious. It’s curious that this so-called “game changer” arrives in lawmakers’ inboxes in the middle of the legislative session. It got no mention during Gov. Butch Otter’s State of the State address. The item is not contained in the governor’s budget. Those are the usual places a governor would put a major policy initiative.
It’s curious that the Otter administration thinks this is good tax policy. How many more corporate welfare deals must the state authorize before we’re clear that these schemes just don’t work?
The nonprofit Tax Foundation, which studies these arrangements, said these deals are dangerous, pointing specifically to the $240 million North Carolina used to lure Dell to the state.
“Unfortunately, Dell announced in 2009 that it would be closing the plant after only four years of operations. A 2007 USA Today article chronicled similar problems other states are having with companies that receive generous tax incentives,” the Foundation wrote in October. “Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness.”
But don’t just take my word for it. Let’s look at the history of tax incentives in the state.
Recall, for example, the Corporate Headquarters Incentive Act. It was heralded as a tool to lure and keep big corporations to Idaho. Born 2005, died 2008. Total usage: ZERO.
The Small Employer Tax Credit, also born 2005, extended to 2020, has done little—less than half a million dollars in annual usage.
Biofuels investment tax credit. Born 2007. Was supposed to generate up to $300,000 in utilization. Sunsetted in 2011. The most it ever did was $68,000 a year.
The Hire One tax jobs tax credit, created in 2011. That was supposed to generate $25 million in tax revenue at a cost of $7.9 million. Total actual usage: ZERO.
The Otter administration’s latest offering is no different. It promises to provide a tax credit if an existing business or a new business brings in, for some weird reason, at least 20 new jobs. But what if I create only 19 jobs? What if I create no new jobs, but I give all my employees raises so instead of making $11 an hour, they’re now making $22 an hour? Isn’t that good for my employees, for the state and for the economy?
What if I own a little company? And what if I have only four employees and I double my workforce to eight employees. I get no consideration from the state, but I’m expected to help subsidize the business of my competitor.
Likewise, the state would make its tax credits available to, say, Walmart, which has the resources to create hundreds of retail jobs at a time. But the little neighborhood grocery store, or restaurant or automobile mechanic—companies that are the backbone of the American economy—can expect nothing except to have to subsidize their competition through higher tax rates.
Commerce Director Sayer says Idaho is a “flyover” state when it comes to business recruitment. He’s right. That’s because we keep depending on corporate welfare to lure jobs.
Lawmakers and Gov. Otter, if you want economic development, and I know you do—I do as well—just cut taxes. Stop playing games with special deals that ultimately fail and force the state to decide which companies are more deserving than others.
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