Peter Crabb said consumers may not know what’s behind the high prices at many local stores they shop at.
Crabb, a Finance and Economics professor from Northwest Nazarene University, presented his findings on property tax to the Senate Local Government and Taxation Committee Feb. 26.
“All citizens of Idaho bear the burden of taxes, in particularly this business property tax, even if we don’t actually make the payment,” Crabb said.
Crabb said Idaho’s personal property tax is a business expense like any other, and in order to succeed, businesses must offset costs against revenues to make a profit.
“Such a tax is therefore often passed directly onto consumers in the form of higher prices,” Crabb said. “In this issue, the personal property tax is like a hidden sales tax on the consumer.”
He said businesses can adjust other costs when taxed.
“All business are just collective enterprises formed by an individual, and the taxes must one way or another flow through to individuals,” Crabb said.
Crabb said economists look at the administrative burdens at state and local levels to rate the effectiveness of taxes and look at how well revenue is being raised.
He said economists also look at how taxation distorts the incentives in the marketplace, including households, individuals and businesses.
Crabb said the administrative burden of taxes like filling out the forms, sending payment and record-keeping are ways to look at how well a tax is working.
Crabb said the more widely accepted economic theory is that the source of economic growth for the long term is investment, which leads to higher productivity in the workforce and the ability to produce goods and services.
Crabb said researchers at Ernst & Young Accounting Firm found the burden of all business taxes falls disproportionately on workers. They found that 56 percent of all taxes in Idaho are shifted back to labor.
“Higher labor productivity in the associated higher wages is the objective of Idaho policy makers today, including the governor,” Crabb said.
House Bill 100, also known as the “Idaho Opportunity Fund,” would give $3 million in grants to bring higher-valued businesses to the state.
Crabb said the intent of the Idaho Opportunity Fund is “to retain, expand or attract quality jobs in industries deemed vital to the health of the local and statewide economy.”
He said there is no statistical relationship between economic growth in the state and personal property taxes. The tax foundation found that between 2000 and 2009, there is a negative correlation between state income gross and personal property tax collections per capita.
Crabb said there was a .25 percent difference in economic growth between the two groups but they can’t say that it is solely due to the correlation.
“What that means is that there are definitely other factors at play,” Crabb said.
Crabb said in economic theory, a state with a tax system that is easy to administer, spreads the tax and does little to distort incentives will have a faster growing economy.
“Repealing Idaho’s personal property tax furthers this objective,” Crabb said.
Crabb said it’s unreasonable to promote the development of capital-intensive businesses in Idaho while taxing them more than others.
“The burden of Idaho’s personal tax is largely born by the state’s workers and unjustly taxes the sector of our economy we are currently trying to promote,” Crabb said.
Emily Johnson can be reached at firstname.lastname@example.org