BOISE - A $36 million tax cut for Idaho’s top earners is roaring through the Idaho Legislature, backed by Gov. Butch Otter and co-sponsored by a majority of the members of the Idaho House.
The move comes even as Idaho’s reeling from three years of deep budget cuts to everything from schools to Medicaid, very few of which are being restored.
“The governor has recommended that we not collect this money, that we’re collecting too much,” said Rep. Marv Hagedorn, R-Meridian, one of the bill’s 40 house co-sponsors; the Idaho House has 70 members.
“It’s probably the best economic development bill we’ve seen all year,” declared House Majority Leader Mike Moyle, HB 563’s lead sponsor. The bill passed the House on a 49-20 vote today and now heads to the Senate.
Otter opened the door to the tax cut by challenging lawmakers at the start of this year’s legislative session to enact $45 million in unspecified tax cuts. This proposal, at $35.7 million, is slightly less, but so is the figure lawmakers adopted for the state budget next year; they set a revenue forecast $33.3 million below the governor’s, meaning they have that much less to spend, whether for tax cuts, state services or to refill the state’s drained reserves.
The bill would lower Idaho’s top individual income tax rate from 7.8 percent to 7.4 percent, and lower the corporate tax rate from 7.6 percent to 7.4 percent; that would take $35.7 million out of the state’s tax revenue stream next year and every year thereafter.
Opponents of HB 563, who included 12 Democrats and eight Republicans in the House, say the state can’t afford a tax cut right now, when it’s still struggling with the impact of three years of budget cuts. They’re also raising questions about whether trimming taxes really constitutes economic development.
“Every study I’ve seen says cutting taxes in and of itself does nothing to further economic growth, even though I recognize that’s a strong belief by many in this body,” said Rep. Bill Killen, D-Boise, who said he thought investing in higher education would have more impact. “I certainly don’t think giving money back in the hope that it’ll somehow generate jobs is a very intelligent way to go about it.”
House Tax Chairman Dennis Lake, R-Blackfoot, is a high-profile opponent of the bill. “We are creating a structural deficit in our revenue stream that we cannot deal with, without at some time in the future raising taxes,” Lake said, warning that to sustain the permanent tax cut, Idaho would have to see 7.8 percent growth in state revenues next year. Lawmakers adopted a revenue forecast showing just 4.5 percent growth next year.
Idaho’s had prior experience with that issue; in 2001, lawmakers granted a permanent income tax cut based on a big state surplus; just two years later, then-Gov. Dirk Kempthorne forced the longest legislative session in state history to push through a temporary sales tax increase to avoid deep cuts in education.
Rep. Dick Harwood, R-St. Maries, said, “When we take tax dollars from people and we take more than we can actually use, we’re saying we can use it more than you do.” He said, “I think some of the money that we’re taking in too much needs to go back to the people.”
But Rep. Brian Cronin, D-Boise, noted that Idaho voters have been approving school property tax levy increases to make up for state funding cuts, “district after district, year after year, to compensate for the deficit in K-12 appropriations that we’ve failed to deliver. … It’s a shell game.”
Idaho’s new state Department of Commerce chief, Jeff Sayer, is backing the bill, but he’s not suggesting the tax cut by itself will create jobs; instead, he lauded its symbolic value in discussions with businesses looking to relocate.
“One of the challenges we have is our tax rate is not competitive,” Sayer said. “Underneath that, our effective rates are lower, but the challenge is window dressing. … We don’t make the cut, because our corporate rate is higher and that sticks out.”
Sayer said, “This legislation would allow us to step forward and announce to the world that not only is Idaho financially solvent and fiscally sound, but we just reduced our taxes.”