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234 IRET Congressional Advisory 1 (2007)

handle is hein.taxfoundation/iretcgadv0231 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. December 31, 2007 Advisory No. 234 HOW BUSINESS PROPERTY TAX RELIEF CAN BOOST A STATE ECONOMY WITH LITTLE COST IN GOVERNMENT REVENUE: A CASE STUDY FOR IDAHO Executive Summary This paper examines how repeal of the Idaho personal property tax on business equipment would affect the incomes and employment of state residents and state tax revenues. Repeal of the tax by localities and reimbursement by the state would cost an estimated $108 million, on the assumption that the tax cut would have no effect on the state economy (a static estimate). However, the net effect on state revenues (based on 2005 revenue levels) could be as low as $55 million, after allowing for the positive dynamic effects of repeal on economic activity in the state. Roughly 49 percent of the static cost, or about $53 million, could be offset by the added growth of private sector income and spending, and the resulting increases in personal and corporate income taxes, sales taxes, and excise taxes. The static cost would be only about 4% of state revenues, and the net, dynamic cost would be only about 2% of state revenues. State revenues grew over 11% between FY 2004 and FY 2005. After inflation, the cost of the tax relief would be only half of one year's revenue growth. The full increase in investment and employment, and the full revenue reflow, would take about 5 years to develop. It would be possible to phase out the tax over the same period to match the growth of the reflow and minimize the impact on the state budget. The state economy and its residents would benefit from elimination of the business personal property tax. State private sector product (income) would increase by about 1.5%, or $569 million. About two-thirds would be in the form of private sector wages and salaries, or $379 million. That translates into about 2,800 full-time equivalent workers, about a .5% rise, plus an increase in the hourly wage of about 1%, for a total rise in labor income of about 1.5%. The income gains to the population would far exceed the cost of the tax relief to the state. The income of people in Idaho would rise by $569 million. The state would take back about 9.3%, or g~*I S I 66, 6 A~ Agg

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