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We cannot spend nor subsidize our way to prosperity

Fred BirnbaumIn conversations about Idaho’s economy, people lament the low wages in the state. The discussion naturally turns to state tax and fiscal policies.

When it comes to such matters, I maintain that Idaho should view itself relative to other states. Though there are challenges when you compare personal income but don’t control for cost-of-living differences, you can partially overcome this by using trend line data. So, over a long time period, let’s compare Idaho’s personal income as a percentage of total U.S. personal income.

Idaho’s per capita personal income, relative to that of the U.S. as a whole (going back five decades), peaked in 1974 at 94.4 percent, was last over 90 percent in 1976, and now stands at roughly 80 percent. The decline was reversed slightly in the late 1990s by the tech boom. But, the most recent recession has taken us back to where we were in the late 1980s, early 1990s. It is important to remember: despite what opponents claim, the income decline began long before right-to-work laws took effect.

Fundamentally, Idaho’s relatively high wages in the mid-1970s were the product of high-paying resource industry jobs in timber and mining.

Keep that in mind as we fast-forward to 2016. Some 62 percent of Idaho is federal public land; since the 1976 passage of the Federal Land Policy and Management Act the policy trend has been to continually restrict commercial activity on public lands. Thus, it’s no surprise that from its 1970s peak the timber harvest on federal land in Idaho is down more than 90 percent.

Absent a revival of rural resource-based industries, can we achieve greater prosperity in Idaho on a statewide basis?

If we accept the fact that changing federal land management is a middle- to long- term policy shift, what can we do now?

We should examine what is working in other states and benchmark those policies. If we think regionally, Idaho competes with Washington, Wyoming, and Nevada, which have no personal income tax; Utah, which has a lower income and sales tax; Montana, which has a lower income tax and no sales tax; and, finally, Oregon, which has a higher income tax but no sales tax (Idaho’s corporate income tax picture is a bit more unfavorable;  Oregon’s income tax is lower for the first $1 million of corporate income).

The Tax Foundation’s comprehensive 2016 ranking of all 50 states’ business tax climate puts Idaho at 19th. Unfortunately, Idaho ranks worse than its regional competition: Washington is 12th, Oregon 11th, Utah is 9th, Montana 6th, Nevada 5th, and Wyoming ranks 1st. We face some pretty stiff competition.

Proponents of targeted business incentives, like former Idaho Commerce Secretary Jeff Sayer, argue that Idaho must offer some form of Tax Reimbursement Incentives as many states do. The suggestion is interesting because in the next breath tax-incentive proponents will argue that we can’t lower overall taxation because we need to spend more on education and other priorities that businesses deem important.

So where does that leave us? High taxes for existing businesses and individuals and special deals for newcomers. According to a New York Times analysis, in the same period that Idaho provided 253 tax incentive grants to businesses, Utah provided 3,504, Washington 10,528, and Oregon 10,027. Clearly this is the sort of competition we can’t win in the long run — nor should we try.

We cannot spend — or subsidize — our way to prosperity. Nor can we count on immediate changes to federal land policy, which would create high paying jobs.

I suggest that the only way Idaho can achieve greater, sustained prosperity is as follows: hold state general fund spending growth to 4 percent or less (compared to the 7.3 percent proposed by Gov. Otter, which is really more than 8 percent when you include accounting gimmickry), simplify and lower taxes in a modest and predictable way, and limit new regulations imposed on businesses.

Fred Birnbaum is vice president of the Idaho Freedom Foundation. He most recently served as director of business and financial analysis for Packaging Corporation of America (formerly Boise Inc.) and has lived in Boise since 2000.



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One comment

  1. jordanmorales@boisestate.edu

    So the current tax incentive program, tied to job creation, shouldn’t exist because other states award more incentives than Idaho does? I’d like a bit stronger argument on that one than a paragraph in an editorial but of major consideration should be the number of jobs these incentives have created. These “newcomers” get the reimbursement for 15 years (I believe) and it’s my understanding that they generally reject companies that would be competing with “existing” Idaho companies so there isn’t an unfair advantage for them.

    Has there been an in-depth look at the tax reimbursement incentive program and how it’s been performing? From the state view and the IFF view?