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State ranking group faults Idaho for PERSI accounting, preferential tax incentives to attract business

State ranking group faults Idaho for PERSI accounting, preferential tax incentives to attract business

Idaho Freedom Foundation staff
March 11, 2014
[post_thumbnail] Rep. Jeff Thompson, left, R-Idaho Falls, and Sen. Dan Schmidt, right, D-Moscow, attended a Tuesday meeting featuring tax policy experts. Both sit on the Joint Finance-Appropriations Committee.

Idaho has done relatively well at growing its economy during the past several years, and its future economic outlook is almost as strong as its immediate past performance.

But, according to the American Legislative Exchange Council (ALEC), a Washington, D.C.-based nonprofit think tank that analyzes and ranks the states, Idaho policymakers should consider making some course corrections in order to fulfill the state’s potential.

Jonathan Williams, director of ALEC’s Center for State Fiscal Reform, for example, addressed his concerns with the Public Employees Retirement System of Idaho (PERSI). “States across the country have used faulty accounting practices for years, just so they can say that their public pension systems don’t have problems,” he noted. “Idaho, for example, assumes a 7 percent rate of return every year, without interruption, for the next 30 years.”

Williams calls foul with PERSI’s rosy self-analysis. “Bond rating agencies like Standard and Poor’s assumes only a 4.5 to 5 percent rate of return for PERSI and so does Warren Buffett. If you use these more modest projections from outside sources, it turns out that PERSI’s unfunded liabilities are much higher than what your state government will acknowledge.”

“We’ve got two broad legislative issues that we’re dealing with during this session and they both have the name ‘Utah’ attached to them,”

Sen. Cliff Bayer, R-Boise, commented. Noting House Bill 548, which seeks to conditionally cut the state’s income and corporate tax rates, and House Bill 546, known as the “tax reimbursement incentive” program, Bayer asked “what does it do to a state when tax incentives are only offered to specific industries or even specific companies?”

“Utah gets a high ranking with us because not only have they held taxation rates at low levels, they have also kept their spending within their means,” Williams replied. “That said, we do take a strong stance against giving tax preferences to specific companies and industries, and instead we argue for tax policy neutrality. When you take the ‘jump through the hoops’ approach to tax policy, companies end up making choices for tax purposes rather than for economic growth purposes, and that generally never goes well.”

But, in general, “Idaho really is doing fairly well,” noted Williams, in speaking to members of the Senate and House Capitol on Tuesday. “On some issues your state ranks very high, and on some issues not as high, but overall you are performing well.”

In a publication entitled “Rich States, Poor States,” ALEC has provided in-depth economic analysis of the inner workings of each of the 50 states, and then ranks each of the states. With Utah ranked No. 1 and Michigan ranked 50th, ALEC puts Idaho at No. 6 for its recent economic performance, and No. 7 in terms of its economic outlook.

The report also provides numerical grades on specific areas of public policy within each of the states. Idaho earns high marks for its policy of making labor union membership optional rather than mandatory, and for lack of a state inheritance tax.

But Idaho also ranks in the bottom half of the nation for its top marginal income tax rate and for the income tax progressivity.

During the presentation, Sen. Dan Schmidt, D-Moscow, asked “I notice your grading of Idaho’s tax policy. How does our tax policy impact growth rates?”

“Obviously, that’s one of those variables that lawmakers can control,” Williams replied. “Generally speaking, the lower the personal income tax rate, the better the economic productivity.”

Williams, along with his ALEC associate Jeff Lambert, spoke to the legislators in a gathering co-hosted by Sen. Jim Patrick, R-Twin
Falls, and Rep. Jeff Thompson, R-Idaho Falls. “These are very important facts and ideas that these gentlemen have for us,” Patrick said. “In fact, it’s so important that I got the Senate floor session delayed by half an hour today so we’d have time to listen to this.”

After the presentation, Thompson told IdahoReporter.com that “these ideas that were presented here are grounded in true Jeffersonian principles. This is about giving freedom to the people and it is what we are trying to do with our tax policy here in Idaho.”

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