Dissent emerges over tax breaks

BOISE – Lawmakers, lobbyists and activists met Thursday to hash out how Idaho can broaden its tax base, though competing interests immediately made it clear that tackling the state’s patchwork of exemptions and incentives will be a struggle.

For instance, Randy Schroll – whose job at the Idaho Department of Commerce is to lure new businesses – said many companies get sticker shock when they glimpse the state’s corporate tax rate. It’s 7.6 percent – equal to New Mexico’s but higher than those of all other Western states except California. Raising state revenue by dumping some tax exemptions could help lower Idaho’s corporate tax rate, Schroll said. Idaho also has a 6 percent sales tax, higher than the 4.8 percent national average.

“If we were to be given a choice of eliminating tax exemptions or a lower tax rate, a lower tax rate would be the way to go,” he said.

But Alex LaBeau, chief lobbyist for the Idaho Association of Commerce and Industry business group, favors adding more incentives to the tax tapestry, such as dumping Idaho’s $100 million annual tax on business equipment. Reducing the corporate tax rate isn’t a bad idea, LaBeau said, but his main interest isn’t luring new firms, it’s helping those already here.

“We would like the Legislature to consider eliminating it (the business equipment tax) in one year,” said LaBeau, whose group opposes dumping tax exemptions to pay for such a move.

Meetings of this four-Democrat, 10-Republican interim committee conclude today but will start again in early October. The meetings were scheduled after the Senate Local Government and Taxation Committee in the 2007 Legislature balked at allowing new sales tax exemptions – until old ones are scrutinized.

In all, there are about 100 exemptions or incentives, providing about $1.6 billion in annual tax relief.

A sales tax exemption on production equipment is worth $88 million annually to businesses, while an investment tax credit is worth $40 million. And buyers of goods as varied as irrigation equipment, gear for semiconductor factories, publishing equipment and teaching supplies – even knickknacks from garage sales – need not pay sales tax.

Sen. Brent Hill, R-Rexburg and the interim committee’s chairman, said he has modest hopes of dumping specific exemptions. Any recommendations must get 2008 Legislature approval to become law.

Hill, an accountant, aims instead to draft sound tax principles that lawmakers in 2008 and beyond can use when groups such as LaBeau’s, mining outfits, charities and companies like Micron Technology Inc. come calling for tax breaks they say are critical to staying afloat in Idaho.

“So the next time special interests request tax exemptions, we can ask, ‘Does their request fulfill the principles … of a sound tax system?’ ” Hill said in an interview.

Don Reading, a liberal-leaning economist in Boise, told the committee that all existing exemptions should be given an expiration date, then evaluated to see if they’re worth keeping.

Keith Allred, president of The Common Interest, a group of self-proclaimed political moderates, said the debate over tax exemptions reflects a challenge facing elected governments everywhere: Though lawmakers are chosen by voters, once they’re in office they are bombarded by special-interest groups or companies that want something. Often well-funded, these groups can overshadow regular citizens, Allred said.

“Whenever a given tax exemption is up for discussion, it’s proposed by a small group of citizens, but they get a deep benefit,” he said. “The rest of us have to carry their share. It seems odd that conservative Republicans would argue that the government can better figure out where to put tax relief than the market can.”

Billy Knorpp, a Boise businessman and National Federation of Independent Businesses member, said his group favors broadening the tax base as much as possible, even though it opposes eliminating exemptions and, like LaBeau, wants the 2008 Legislature to dump the business equipment tax.

Sen. David Langhorst, D-Boise and an interim panel member, suggested it was incongruous to favor slashing the business equipment tax, oppose doing away with exemptions – and yet still harbor hopes of broadening the tax base.

Knorpp conceded the aims seemed at odds. Still, businesses are suspicious of efforts to trim incentives because there’s no guarantee eliminating exemptions will be accompanied by lower overall tax rates, he said.

“The fear is, we’ll broaden it (the tax base), and we’ll still end up with a higher tax rate,” he said.