STYRING: Stereotypes aside, business taxes really do matter

February 15, 2014

Gov. Mike Pence has proposed eliminating property taxes on business machinery and equipment. How exactly that is to be done, and over what time frame, he has left to the wisdom of the General Assembly.

That’s his style. Even though his party has quorum-proof majorities in both chambers, it’s not in his DNA to say, “Here’s my 14-point plan, now pass it!”

That’s not, in any case, the way to win favor with the finance barons who run legislative committees in Rooms 404 and 431 of the Statehouse. These worthies tend to think they have a better way to do things than anything coming from the executive branch—and often they are right.

But just what is the role of the “business tax climate” in the future course of Indiana’s economy, or any state’s economy?

In a cynical sense, this question is of limited relevance. Some legislators (mainly, but not entirely, Republican) react positively to any tax-cut proposal. Small-government types who deep down suspect there’s so much fat and stupidity in government that any tax cut will produce welcome gains in efficiency. (Disclosure: my sympathies generally lie with these folks). Deduct 50 points from the government side of the ledger before weighing costs and benefits.

Other legislators (mainly, but not entirely Democrats) view any tax cut as starving vital public services of critical resources.

Bigger-government types argue inter alia that what really counts are government-supplied “quality of life” amenities (palladiums, mass transit, etc.) and educated work forces that only gunning the public budget can satisfy. This camp always adds 50 points to the government side.

So let’s accept these Captain Renault in “Casablanca” usual suspects as givens.

Re-ask the question: Should we care about the business tax climate?

Answer: Yes. And my evidence comes from a rather arcane source. From 1979 to 1992, I was the tax guy for the Indiana Chamber of Commerce. Being human, I wanted to believe the things I was arguing for were good for the state. Not mere special-interest pleading.

What bothered me most from my own academic research was the surveys of actual business firms asking them to rank various factors when making a location or expansion decision.

Invariably, these surveys (there were dozens) ranked highest factors such as proximity to markets, transportation, right-to-work laws and such-like. Tax climate was seldom higher than in the middle.

But, in my position I also got a lot of phone calls from real-world businesses researching location decisions. Something eventually dawned on my dull brain. Those academic surveys were not ranking the importance of various considerations; they were the decision tree! In other words, taxes come in later in the decision process, but then are often crucial.

If you want to start a barge line, you don’t do it in the Mojave Desert simply because of low taxes. First, you find a river.

The businesses I talked to had narrowed their choices (barge line example) to Cincinnati, New Albany or Paducah. Now they were gettin’ serious about their tax bills.

So by all means, let’s somehow figure a way to ditch machinery and equipment property taxes. They’re the remaining oddball in our business tax structure. Our Midwest competitors have, or are, eliminating them.

And taxes do matter.•


Styring is an economist, a former Indiana Chamber of Commerce lobbyist, and a former senior fellow at the Hudson Institute. Send comments to ibjedit@ibj.com.


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