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 the state is 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.
“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 Thursday 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 a year out of the state’s tax revenue stream starting next year.
Opponents of HB 563 – 12 Democrats and eight Republicans in the House – say the state can’t afford a tax cut 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 added that 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.
He warned 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.
Lake, who isn’t seeking re-election, told the House, “I’m fortunate, I’m not going to be here next year to deal with that issue, but some of you are, and you’d better think about it very carefully.”
Rep. Dick Harwood, R-St. Maries, said he supports putting the money back into the pockets of taxpayers. “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,” Harwood said.
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.”