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Tax breaks should be transparent, not decided upon in a back room

Tax breaks should be transparent, not decided upon in a back room

by
Wayne Hoffman, IFF’s former President
August 29, 2014

Imagine what might happen if officials from the Internal Revenue Service met secretly to decide how big or little your tax liability should be. Picture IRS honchos huddling with colleagues, casting judgment on the value of your kids, your home, your job, said value being subject to the fluid thinking of government officials.

That’s pretty much sums up the latest iteration of tax policy in Idaho, with a new law that lets businesses receive a credit of up to 30 percent against their tax liability. Under the legislation passed last winter, the businesses must add a certain number of jobs—20 in rural areas and 50 in urban areas—to claim the credit. State Department of Commerce officials meet privately with its Economic Advisory Council to decide how big a tax cut to award.

On Tuesday, the council and the department conducted such a meeting to review an application from a company looking to move to or expand in Idaho. The company, whose name wasn’t disclosed, plans to add 50 jobs in Boise, expanding to 100 jobs during a 12-year period. The department suggested a 25 percent tax break, and the Economic Advisory Council responded favorably to that recommendation.

But it made me wonder: Why 25 percent? Why not 30? Or 20? Or 10? Department of Commerce Director Jeff Sayer said the department has developed a “scoring matrix” to help guide those decisions.

“This is a tool we don’t want to have on the street for everyone to look at,” he told me. He said the scoring matrix, developed with the help of the state Tax Commission and a CPA firm, will take some time to “really get it locked down.” That process will occur as other tax credit applications are considered.

Sayer said other companies have applied for tax breaks, with one penciling out to a maximum 30 percent tax credit and another possibly between 10 and 15 percent. The former involves 500 high-paying jobs; the latter, five dozen at the county’s average wage “in a community that’s desperate for jobs,” he said.

To his credit, Sayer offered to give the scoring matrix to me, but he said the scoring criteria is subject to change as the agency works with it and prospective businesses.

I like Sayer a lot. I think he’s genuine and he’s sincere when he says he’s trying to be a good steward of the unprecedented amount of power the Legislature has given him and his department. He wants to do the right thing. And I am heartened by his decision to provide the information he considers sensitive, without hassle, when I asked for it.

But government’s ability to tax and spend, to punish and reward is not something that should be considered lightly, and it seems increasingly that this tax credit is very subjective.

I believed the Legislature and Gov. Butch Otter erred when they approved this tax credit because it gives breaks to big businesses at the expense of smaller companies. It manipulates the free market and keeps marginal tax rates higher for everyone else.

And now it seems the process for evaluating projects makes a bad concept worse.

The public should be able to understand quickly and easily why a business expansion is more or less deserving of special tax consideration than another.

Businesses applying for special tax consideration should able to know what kinds of economic activities the state is willing to smile upon and why. And those parameters should not bend like wheat in the wind.

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