On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- Idaho Considering Complicated and Gimmicky Job Creation T...
Idaho Considering Complicated and Gimmicky Job Creation Tax Credit
Idaho officials believe not enough businesses are looking at their state when deciding to expand or relocate. Unfortunately, the proposed solution (PDF) – a new jobs tax credit – is unlikely to be the fix.
From the Associated Press:
According to the proposal, companies would have to create jobs and pay income, sales and payroll taxes before ever getting a penny back from Idaho's government.
Beforehand, they'd work with the Department of Commerce, as well as the seven-member Idaho Economic Advisory Council, to negotiate the level of tax credit — ranging from 1 percent to 30 percent. They'd also hash out the duration of the deal — up to 15 years — along with the terms to be met in order to get their tax credit.
Companies in rural areas would have to create at least 20 new jobs, while companies in urban areas would have to create 50 jobs, all of which pay more than the average in the county where those jobs are located.
While tax preferences like new jobs tax credits can be politically appealing because they ostensibly incentivize new jobs, at best they distort business investment decisions and at worst they subsidize select companies for doing something they would have done anyway. Even if administered efficiently (which is difficult given the degree of political connections required to obtain them), job tax credits can misfire in several ways. They push businesses who would be better served by buying new equipment or marketing to instead hire new employees. They favor expanding and out-of-state businesses at the expense of firms that may be struggling to keep the employees they have. Their record in other states has shown that they can never hope to attract more than a tiny fraction of new jobs, often at heavy taxpayer cost. And, if the impediment to job growth is high taxes, then they ought to be cut for all taxpayers not just big business or out-of-state businesses.
Wayne Hoffman of the Idaho Freedom Foundation offers examples of similar failed policies in Idaho:
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.
The Idaho corporate tax rate is 7.4 percent, compared to 5% in Utah, 6.75% in Montana, 7.6% in Oregon, and zero in Wyoming. Idaho has a throwback rule to punish out-of-state corporations, doesn’t index its tax brackets for inflation, and applies its sales tax to office equipment and business rentals. Those might be more fruitful areas to tackle than a gimmicky new credit that won’t move the needle much on job creation.
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