As the Idaho Legislature’s Tax Working Group ponders whether to cut Idaho’s income tax rates in an effort to spur economic growth – as Idaho did previously in 2012 and 2001, with mixed results – we asked three Idaho economists whether cuts like those would spur Idaho’s economy. All said no.
“There’s no consensus in economics that tax cuts have a boost on the economy in the long run,” said Eric Stuen, an economics professor at the University of Idaho. “I think a few percentage points here or there doesn’t make much of a difference for the functioning of the economy.” But, he said, “It can change the government fiscal picture and budget deficit picture pretty dramatically.”
In 2001, Idaho permanently cut its personal and corporate income tax rates by four-tenths of a percentage point, dropping the top income tax rate to 7.8 percent and the corporate rate to 7.6 percent. Serious state budget problems and a sales tax increase followed; in Idaho’s longest-ever legislative session in 2003, then-Gov. Dirk Kempthorne kept lawmakers in town for 118 days, before they agreed to tax hikes to avoid deep cuts to schools.
In 2012, Idaho cut its top individual income tax rate from 7.8 to 7.4 percent, and cut the corporate rate from 7.6 to 7.4 percent. Idaho’s economy is now growing, but Boise economist John Church, who teaches at Boise State University and long was the corporate economist for Idaho Power Corp., said, “The nation was recovering, the state was recovering. … The momentum was already there for growth in the economy at that point of time.”
Idaho State University economist C. Scott Benson said, “I think both of those tax cuts were inappropriate. This mentality that we can keep starving government and have a thriving economy seems to fly in the face of everything we know about trying to prepare our young people for the jobs of the future.”
Benson said, “I think the best thing you can do is to have stable taxes. … That allows businesses to make proper long-term plans and invest where they want. Other states have a lot higher taxes than Idaho and they’re doing well, but again, there’s some consistency there.” You can read our full story here at spokesman.com.