Moscow-Pullman Daily News July 22-23, 2006
By Judith L. Brown
“Influential IACI poised to shrink” read the headline. IACI of course is the Idaho Association of Commerce and Industry, Idaho’s big business lobby — the lobby that pretty much calls the shots in Idaho state government. What IACI wants, IACI gets, at least most of the time.
IACI is jacking up its membership fees. As a result, it is expected that small to mid-size businesses may create their own statewide organization to represent them.
Now that’s a story that caught my eye. What if IACI were to shrink …
I can think right off of at least two ways in which policymaking in Idaho would improve if IACI were to shrink and an effective voice for small to mid-size businesses were to develop.
First, we would be likely to get better discussions about the appropriate role of business taxes in Idaho’s tax structure. IACI lobbyists love to claim that business taxes in Idaho are too high and need to be reduced.
At best, this claim is misleading and at worst it’s just plain wrong.
Idaho’s corporate income tax rate is a flat 7.6 percent. About two thirds of the states have corporate income tax rates that are lower, according to the Federation of Tax Administrators (www.taxadmin.org). So, at first glance, a rate of 7.6 percent may seem somewhat high.
However, in looking at whether or not a tax is high, it is critical to consider not only the rate but also the base to which it is applied. Idaho offers a generous array of corporate tax credits, deductions and exemptions. Last year, Idaho’s corporate income tax generated approximately $140 million in revenue. Were it not for the various tax breaks granted to some but not all businesses, the corporate income tax would have generated another $45 million. That is, Idaho gives away almost one-third of its corporate income tax revenues in tax breaks. As a result, Idaho ranks 30th out of the 50 states in terms of corporate taxes as a share of income. Corporate tax burdens in Idaho are not high.
But that’s not the end of the story. Which businesses are the beneficiaries of these tax breaks? The biggest corporate tax breaks in Idaho are investment tax credits and the beneficiaries are disproportionately large, capital-intensive corporations. (It’s also worth noting that investment tax credits have almost no influence on business decision making, and that the bulk of new jobs in our economy are generated by small to mid-size businesses, not by big business.)
In other words, there are tremendous inequities within Idaho’s corporate tax structure. Small businesses are paying corporate income taxes at close to the 7.6 percent rate. Big businesses, because of the more generous tax breaks they receive, are paying corporate income taxes at a much lower effective rate. That’s not fair. This inequity, however, will not get addressed as long as IACI is pretending to represent small, medium and big businesses alike.
A second respect in which the policy context in Idaho would improve if IACI were to shrink is in the area of education funding. Twenty years or so ago, when I first came to Idaho, I remember IACI endorsed and sometimes even actively supported proposals to strengthen public and higher education. Nowadays IACI rarely takes this tack.
During the recent property tax debates I heard an IACI lobbyist say blandly “Of course we care about the public schools; we have grandchildren in school.” This is hardly a ringing endorsement for a strong education system as a critical component of a healthy business climate. In contrast small business people around the state, in my experience, are very concerned about the public schools. They cite the difficulty of finding new hires with the necessary education and training as the most serious challenge they face in running a successful small business. Furthermore, small businesspeople tend not to make the big bucks that would enable them to send their kids to private school even if they wanted to. They’d be more likely than IACI to support investing in a strong education system both for our children’s future and for the future prosperity of our state.
“Rumors of my death are greatly exaggerated,” quipped Mark Twain after a cousin’s illness morphed into a report that Twain himself had died.
Rumors of IACI’s shrinking may also be exaggerated. But wouldn’t it be nice if they came true?
* Judith L. Brown is an economist and director of the Idaho Center on Budget and Tax Policy. She lives in Moscow with her family and can be reached at jlbrown@turbonet.com.