Idaho plan seeks to ease tax pain

Idaho lawmakers meet Friday in Boise to salute property tax relief a la Gov. Jim Risch. Get your stopwatch ready. They may finish by lunch, time enough to set the stage for many a happy weekend in North Idaho.

Residents of Kootenai and Bonner counties especially have seethed with every new assessment notice. The average increase last year in Kootenai County was 40 percent. Valuations in Bonner County threatened to jump an average 60 percent until the Tax Commission came up with a compromise that will roll back the potential assessments.

The plain fact is those increases reflect what has happened to North Idaho real estate. Times are good, and the region’s environment has drawn buyers transplanting equity from much richer markets. But that’s not much of a salve to longtime residents who remember when $100,000 bought a pretty spiffy home. And for those on fixed incomes, forget it. How do you keep up if Social Security benefits grow just 4.1 percent, as they did at the beginning of 2006?

You can’t, hence the fury.

The Legislature eased the burden somewhat during its regular session by increasing the homeowner exemption. But that triggered a backlash by business interests who got nothing out of the deal except a bigger share of the state’s overall tax burden.

They get plenty from Risch’s plan, which breaks down like this:

Eliminate the property tax levy dedicated to school maintenance and operations, and backfill, in part, with a penny increase to the sales tax. Idaho’s handsome $208 million revenue surplus would be tapped to supplement that new money, and to provide a $100 million reserve against the day sales tax revenues and ongoing surpluses fall short of revenue requirements.

That possibility would seem distant. Idaho’s economy grew 7.5 percent last year, and continues to do well. The only obvious constraint is the growing shortage of skilled workers. Unless the national economy tanks, the reserve ought to be adequate for at least a year or two.

So, which taxpayers benefit? The split looks something like this, although the numbers get slippery depending on who is doing the calculating: Homeowners come out ahead to the tune of $105 million, recreation property owners – many absentee – save $62 million(!), and business of all kinds $93 million. Renters – 28 percent of all Idahoans – get zip.

But that’s just the property tax side of the equation. Higher sales tax payments will offset property tax savings for many.

Calculations done by the Association of Idaho Taxpayers show a Coeur d’Alene family earning $70,000 and occupying a home valued at $185,000 would save $2 a year. A Moscow family earning $65,000 and living in a $160,000 home breaks even.

But those are relatively modest home valuations and relatively robust incomes. Those with only fixed incomes to spend should certainly be better off.

They would be better off still under an alternative plan supported by most Democrats and a few Republicans. Their proposal would restrict relief to owner-occupied homes, eliminate the sales tax increase, and partake more liberally from surplus revenues.

Risch and Republican legislative leaders will have none of it. They seem confident they have the votes for broader property tax relief, and that will almost certainly be the plan that emerges tomorrow. The package goes to the voters in November. Few among them will reject this gift horse. As the saying goes, there must be a pony in there somewhere.

But taxpayers of all persuasions should insist that Risch and others follow through on pledges to examine other facets of Idaho’s tax code. If the sales tax on groceries cannot be eliminated, for example, the credit against state income tax obligations should certainly be increased.

With the school maintenance and operations levy eliminated, they might also start to think about how they can assure Idaho education will be adequately funded when the inevitable economic downturn starts to strangle sales tax revenues.