Rep. Shirley Ringo, D-Moscow, and Moscow economist Judy Brown have sent a letter to the editor to newspapers across the state calling for a temporary tax increase to head off a “train wreck” of cuts in state services. “We believe (a) temporary tax increase can be less harmful to families and less damaging to the state’s economy than the alternative: deep cuts in vital services,” the two wrote. They pointed to former Gov. Dirk Kempthorne’s temporary, one-cent, two-year sales tax hike to avoid cuts to education in 2003 as a model, but said this time, “a temporary income tax surcharge would provide the solution we seek. … A modest 5 per cent surcharge on state income tax with taxable income exceeding $50,000 would generate about $44 million per year.” They estimated that for a family of four with house hold income of $76,000, that’d mean a $162 surcharge. Click below to read the full letter.
Ringo was careful to note that her letter doesn’t represent the view of “either political party;” neither Republican nor Democratic caucuses in the Legislature have been advocating a tax increase. But Ringo said she’s hearing concern from people in her district about serious cuts to everything from higher education to Medicaid to parks. “I just see an awful lot of needs, and I think we’re actually going to be hurting people,” she said. “If we can’t provide some of these services one way or another, I think we’re going to be doing more damage to the economy than not. I just think we should have a full-blown debate about all the pros and cons, and not just have the knee-jerk anti-tax reaction.”
Idaho’s revenue system is in big trouble. There are basic services we must support – public schools, higher education, public safety, healthcare and other safety net services for the working poor,– these services are vital.
We’re headed for a train wreck. State revenues have not met levels expected when the budget was set for fiscal year 2010. At the end of September Governor Otter declared another budget holdback of 4% - almost $100 million.
Employment for Idaho citizens is going to lead us back. This won’t happen immediately. Meanwhile, we must act responsibly.
Consider these problems with respect to building a budget for fiscal year 2011:
Even with holdbacks and cuts, it is projected that we may be $52 million short of having enough money to pay our bills for the remainder of fiscal year 2010.
23 school districts around the state have declared financial emergency and 15 districts and 3 charter schools are operating on a four day week. The budget request prepared by the State Department of Education in September would maintain current operations and pay for growth. Currently, it would take all public school rainy day funds and stimulus money and $122 million of general fund money to pay for it.
The National Center for Budget Policy already gives Idaho an “F” for affordability of public colleges and universities. A bare-bones budget for higher education would use the remainder of stimulus funds plus $18 million.
In times like these, the case load for Health and Welfare Services grows. The Department must function with $12 million less because of holdbacks. But things may be worse. The enhanced federal matching rate for Medicaid is set to expire in January of 2011. State leaders must get busy convincing Congress to extend the higher matching rate. Otherwise, the state will be left holding the bag for some $94 million in FY 2011.
The Department of Correction, having furloughed employees and held too many positions vacant this year is requesting $20 million to adequately protect the public.
These approximations show a need for $224 million new money for FY2011. (It will be more if the federal matching rate is reduced.) We expect state revenues to grow, but perhaps not in time to meet this crisis. These sources are available - $134 million in unspent reserve funds and $14.1 million in unspent stimulus monies. ($80.8 million could be used from the “Traditional Millennium Fund,” but this money is usually reserved for substance abuse treatment and related health issues.)
We believe these services must be supported and failure to act would be irresponsible. When we faced a similar situation in 2003, then Governor Kempthorne said: “We have cut the fat … and we cut into the muscle. … None of us were elected to eliminate core services we provide our citizens.”
We think the responsible thing to do is to face the challenge and find a solution. The recovery has begun but will take time. Meanwhile, while the state’s economic engine builds momentum, we need a temporary source of revenue to maintain our commitments to the people of Idaho. Yes … we recommend a temporary tax increase.
Many have suggested eliminating some of the 120-odd tax exemptions. While this should be done, it cannot be done quickly, and we need a quick, short-term fix. Raising the sales tax would burden those who are employed or struggle with low-paying jobs. That leaves the income tax.
A temporary income-tax surcharge would provide the solution we seek. According to the Department of Financial Management, a modest 5% surcharge on state income tax for those with taxable income exceeding $50,000 would generate about $44 million per year. (A couple with two children earning $76,000 per year and taking the standard deduction would pay a surcharge of $162 to help protect public schools and other core services.)
Raising revenue temporarily as we begin to come out of the deepest recession since the Great Depression is sound judgment. We believe temporary tax increase can be less harmful to families and less damaging to the state’s economy than the alternative: deep cuts in vital services.
Representative Shirley Ringo
Note: The views expressed here do not represent those of either political party.