The Legislature’s Office of Performance Evaluations has released a “Guide to Comparing Business Tax Policies” for use by lawmakers, including an online tool to allow lawmakers or the public to punch in proposed tax policy changes and see at least some of the possible results, depending on their assumptions.
“This report highlights the importance of looking at that total picture,” said Rep. Shirley Ringo, D-Moscow, co-chair of the Joint Legislative Oversight Committee, which released the report today. “We’ll hope policy makers take that seriously.” Both the report and the online tool are on the OPE’s website here.
OPE evaluators found that existing comparisons of tax rates across states have widely varying results, and often look at different aspects of a state’s tax structure – none tell the complete story. In a presentation to JLOC, evaluators highlighted four existing multistate tax comparison studies and their varying results; in them, Idaho ranked anywhere from 18th to 38th among the states.
Idaho’s best rank was in the Total State and Local Business Taxes report, which looks at total state and local business taxes paid as a percentage of gross state product. “Idaho scored fairly well, at 18th on that study,” evaluator Lance McCleve told JLOC. The other studies focused on certain industry sectors, looked only at statutes rather than payments, or looked only at businesses planning to expand or relocate. “Each of these studies will tell you something a little bit different about a state’s tax structure,” McCleve said. When OPE evaluators combined all the raw data from all four studies for an aggregate ranking, Idaho ranked 31st among the states, roughly in the middle.
The evaluators also found that the comparisons don’t tell the whole story. The relationship between tax policy changes and economic development is “not as strong as we thought it was,” McCleve said. “There is a relationship, it does matter, but … they’re certainly not the end-all and be-all, and in many cases they can’t overcome the other non-tax related factors.”
As an “extreme example,” he said if a state reduced its taxes on oil drilling to zero but had no oil, “No one is going to come drill for oil. There are just other factors that matter.” He said, “Every change to tax policy doesn’t have an equal effect on the economy. … Rate and policy changes really shouldn’t be considered without consideration of non-tax factors.”
That said, the evaluators developed an online tool for lawmakers to let them plug in proposals for tax policy changes along with anticipated impacts on state revenues, and see how much the state’s individual earnings or sales would need to rise to offset those changes, if offsets like more jobs are anticipated. McCleve said the new online tool can continue to evolve as more information becomes available.
“It’s simply adding more information for policy makers,” he said. “We’re not aware of a lot of tools the Legislature has like this.” The tool would also allow lawmakers to compare the impacts of adjusting specific tax rates to match those of other states they select.
Ringo said she’d like to see the state’s most recent tax cuts plugged in to the online tool to see if results match changes in state revenue. McCleve cautioned, “This tool looks at isolating your change, like nothing else will change revenue. In reality, it’s a lot more messy.”
State Tax Commission Chairman Rich Jackson called the online tool “a simple and elegant tool to begin the discussion.” Gov. Butch Otter also praised the new tool, saying, “I am committed to using sound, useful data to drive policy decisions.”