The Times Board of Economists

TIMES BOARD OF ECONOMISTS: Pence tax cut grabs local business leaders' attention

2014-02-01T22:35:00Z 2014-02-02T22:03:14Z TIMES BOARD OF ECONOMISTS: Pence tax cut grabs local business leaders' attentionKeith Benman keith.benman@nwi.com, (219) 933-3326 nwitimes.com
February 01, 2014 10:35 pm  • 

Looming uncertainties such as Obamacare and taxes have region business leaders expecting a flat performance from the U.S. economy in the near term and perhaps an economic uptick by year's end.

"The economy is improving," said David Wilkinson, CEO at Strack & Van Til Supermarkets Inc. "But it's not getting better for everyone."

That viewpoint was reflected in the quarterly survey of the 24 members of the Times Board of Economists, whose ratings of the local and national economy changed little from October to January, except for a decided uptick in forecasting how their individual business sectors will be doing one year from now.

The slow creep upward of local business leaders' optimism over the past year seems to reflect the national mood. The closely watched Conference Board Consumer Confidence Index issued Tuesday posted its second straight monthly increase, hitting a mark of 80.7 for January as compared to 77.5 in December.

When The Times Board of Economists met at Gamba Ristorante on Jan. 23, members also had concerns with the numbers that gauge the temperature outdoors. Strings of sub-zero nights, and sometimes whole days, are affecting a wide range of industries as diverse as fast food, car sales, home sales and energy.

People hibernate when the weather turns frigid. And that means they are not visiting the showrooms of local car dealerships, not going for home showings and not going out to eat.

"We are always a victim of the amount of traffic that goes up and down the road," said John Barney, president of Barney Enterprises, which owns several Wendy's restaurants in the region.

But talk at the quarterly meeting quickly turned to climate of another kind, specifically Indiana's business tax climate and the possible elimination of Indiana's business personal property tax.

"We certainly need to support local services and local schools," said Valparaiso Chamber of Commerce Executive Director Rex Richards. "But the question is: Who is actually really asked to pay more than their fair share of the tax load?"

The cut as Gov. Mike Pence first proposed it would have meant a $1 billion cut in taxes for Indiana businesses. But it also would mean a loss of $1 billion in income for schools and communities.

Pence and other proponents of eliminating the tax say it would spur job growth by companies located here and encourage new ones to move to the state. They say that would eventually increase tax collections for localities.

The actual bills proposed in the state Legislature vary widely from Pence's original vision. The Senate bill exempts only small businesses from the tax. The House bill limits the tax break to new equipment and only in counties that choose to enact the cut.

Richards also cited data gathered by the Indiana Association of Manufacturers to bolster his position in support of eliminating the tax. That data show the share of property taxes collected from residential property in Indiana amounts to 29 percent of collections, while 71 percent comes from commercial and industrial property.

Car dealer Tim Roper, owner of Smith Motors Auto Group, said he has recent experience with what a tax cut can do for businesses. When Indiana's 10 percent business inventory tax was phased out, an auto dealer with $5 million in cars on the lot saved approximately $500,000 in taxes.

That money came in handy for car dealers and other Indiana businesses during the recession. The savings now allow them to put more cars on the lot or upgrade operations.

But Roper said as a 20-year board members of the Hammond Urban Enterprise Association, he definitely saw both sides of the coin when it came to tax cuts for businesses.

"Education is the key for those communities that do come up and business has to pay their fair share," Roper said.

Highland Clerk-Treasurer Michael Griffin said elimination of the personal property tax probably would hit communities in Northwest Indiana harder than those in any other region of the state.

That's because most of the assets within huge industrial establishments like the BP Whiting Refinery and steel mills count as personal property. That includes tanks, pipelines, machinery and other equipment.

"Businesses look at a lot of things when they move into an area," Griffin added. "They also want good services. They want roads policed and maintained. They want excellent schools."

But Griffin said the Indiana Association of Cities and Towns is open to working with the governor and state Legislature on what to do about the tax and improving Indiana's business climate.

In addition to the Indiana personal property tax issue, there was no shortage of national issues on the table at the Board of Economists' meeting.

The minimum wage was one of those, with some fuel added to the fire five days later when President Barack Obama called for raising it to $10.10 in his State of the Union address before Congress.

The quick service food industry would be one of those most impacted by any hike in the minimum wage because it employs large numbers of people at or near the current minimum of $7.25 per hour.

Barney acknowledged the workforce in the quick service food industry has changed markedly over the years, employing more adults and fewer teenagers. The work also is markedly more technical than in years past.

"These are all obviously very important people to our country," Barney said of the workers in his industry.

But he argued the minimum wage question might better be left to the states, rather than imposing a "one-size-fits-all" solution from Washington.

"So it's really easy for someone in Washington, D.C., to say $7.25 is a ridiculous rate of pay, well it is a ridiculous rate of pay in Washington, D.C.," Barney said.

The increased pace of implementation for the Affordable Care Act, now better known as Obamacare, also is on the minds of business.

Gene Diamond, Northern Indiana Region CEO for the Franciscan Alliance, pointed out health care employment in December in the United States declined for the first time in 35 years.

"We believe the anticipated arrival of the Affordable Care Act caused a lot of employers, for reasons that we can all understand, to begin to make some hard decisions," Diamond said.

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