When Idaho GOP Rep. Raul Labrador, speaking via video, was asked to address tax policy as a candidate for governor last week at the Associated Taxpayers of Idaho annual conference, he said Idaho’s government “needs to be slashed.”
“My tax plan, just to be clear, it’s going to take some years,” Labrador said, after touting his “5-5-5” plan to cut Idaho’s sales tax, personal income tax and corporate tax rates all down to 5 percent. But he said he’d reach those 5 percent rates for all three within four years.
Labrador said the state could do away with existing tax exemptions and state surpluses to help fund his plan, which otherwise would trim away a quarter of the state’s $3.5 billion general fund budget, costing the state treasury about $900 million a year.
“There’s some areas that we can change, we can cut, we can reform,” he said
Among the largest existing tax exemptions on the books in Idaho are the grocery tax credit, at $149 million a year; the exclusion of Social Security from the state’s income tax, at $88 million; the production exemption from the sales tax, at $219 million; the exemption of utility charges ($115 million) and motor fuels ($159 million) from the sales tax; and the exemption of services, from construction to professional services to health and medical services, from the state’s sales tax. Labrador hasn’t identified any in particular that he’d like to eliminate.
Labrador’s leading rivals for the GOP nomination for governor, Boise physician and developer Tommy Ahlquist and Lt. Gov. Brad Little, also spoke at the conference, with Ahlquist calling for changes in how Idaho handles tax policy, and Little outlining his proposal for modest, incremental tax cuts.
“Part of the reason that I’ve got a pretty concrete plan is that I’ve been here, I’ve listened,” Little said.
Budget growing slower than income
Jani Revier, budget director for Gov. Butch Otter, told the taxpayers’ group that Idaho’s state general fund revenue hit a low of $2.3 billion in the recession year of 2010, and has steadily increased since then, topping the $3.5 billion mark for the first time this year.
“General fund growth is slower than personal income growth,” she reported. Since 2008, personal income in Idaho in the aggregate has grown about 45 percent, she said. The state’s general fund budget grew 25 percent.
“The largest single component of general fund receipts is individual income tax,” she said, closely followed by the sales tax. “It’s mainly driven by individual income and purchases.”
State expenditures see almost half the general fund go to K-12 education and public schools; when higher education is included, education in general takes up about 63 percent of the state’s general fund spending. Health and human services take up another 22 percent. “While the dollar amounts may change, the distribution does not fluctuate very much,” she said.
While revenues have been exceeding projections, Revier said, “It’s prudent to leave something on the bottom line to make sure that our expenses are covered.”
She noted that for next year, significant expenses are anticipated for the final year of the teacher career ladder; for a required major upgrade of the state controller’s computer system; and for other critical needs. “All these important items add up,” she said.
Revier said people often ask her why state spending can’t just stay flat from year to year. In the past 10 years, she said, Idaho’s population has increased by almost 200,000 people.
“It’s like adding a city the size of Boise to the state,” she said. “Providing public safety, education, and mandated human services to an expanded population has a cost.”
She also noted that if Congress doesn’t reauthorize the Children’s Health Insurance Program, Idaho can expect increased costs of $23 million; other decisions made in Washington, D.C. also could affect Idaho’s state budget.
“I know you all want me to come here today and tell you how much money is available for tax relief,” Revier said. “I can’t do that. … I will urge you to consider the expenditure side of the equation when looking at the revenues.”
“Gov. Otter is committed to having a structurally balanced budget, meaning that ongoing needs are not funded with one-time money,” she said. “… An ending balance does not equal an ongoing revenue stream.”
State revenues rebound
Idaho’s state tax revenues rebounded in November, coming in $10.8 million ahead of forecasts – and more than making up October’s $8 million shortfall. According to the state Division of Financial Management, the November general fund receipts were 4.4 percent ahead of forecasts and 14.2 percent higher than November of 2016; for the fiscal year to date, state tax revenues are ahead by $32.2 million or 2.3 percent, and running 7.3 percent higher than this time last year.
The individual income tax had the strongest performance for the month, coming in 6.8 percent ahead of forecasts. Sales taxes were 2.3 percent ahead of forecast, while corporate income taxes again fell short; they’re running 11 percent under the forecast for the fiscal year to date, but are a much smaller slice of Idaho’s revenue pie than sales or personal income taxes.
Robert Spendlove, senior vice president and economic and public policy officer for Zions Bank, said the current economic growth includes some troubling indicators that could foretell a downturn.
“I don’t expect a recession in the short term, meaning in the next six to 12 months,” he said, “but I think the trend is pretty clear. … Possibly in the next 18-24 months we could start to see signs.”