Here's my full story from Sunday's Spokesman-Review:
By Betsy Z. Russell
Idaho Rep. Raul Labrador’s tax-cut plan would cost Idaho’s state treasury roughly $900 million a year if he were elected governor.
Rival Tommy Ahlquist’s tax-cut proposals add up to a $630 million a year reduction to the state treasury.
And Lt. Gov. Brad Little, the other major GOP hopeful in the race, has a plan that would cost the state treasury $115.9 million in the first year, and nearly $200 million a year after four years.
“It’d be hard to find anyone with intimate knowledge of our state budget who thinks we can afford such huge revenue cuts in one year,” said Lauren Necochea, director of the Idaho Center for Fiscal Policy. “Revenue cuts of that magnitude would cut deeply into schools, higher education, and health care for kids, Idahoans with disabilities and seniors.”
Labrador’s plan alone would trim a quarter of the state’s $3.5 billion general-fund budget.
The three rivals for GOP nomination for Idaho’s open governor’s seat in 2018 all have been touting tax cuts, but Labrador, who’s promising the most, has said the least. While Little has released detailed proposals and Ahlquist has given multiple, lengthy interviews about his ideas, Labrador, who represents North Idaho in Congress, declined to be interviewed for this story. His campaign has declined multiple requests for detail on Labrador’s “5-5-5” tax plan, which he’s touted in speeches and talk-radio appearances around the state.
Labrador says he wants to lower Idaho’s 6 percent sales tax to 5 percent; plus also lower its 7.4 percent corporate income tax and its individual income tax, which now has a top rate of 7.4 percent, to a flat 5 percent. In addition, he favors repeal of the sales tax on groceries.
The individual income tax change would slash $465 million a year from the state general fund; the corporate tax cut would add $73 million in cuts; and the grocery tax repeal, once he’d lowered the sales tax from 6 percent to 5 percent, would tally $66 million.
Labrador has been talking up his “5-5-5” plan since at least July, when he touted it at an Idaho Republican Party forum for all three candidates in Coeur d’Alene. This fall, he told conservative talk radio host Kevin Miller in Boise that in addition to lowering all three tax rates to 5 percent, “I want to get rid of some of the loopholes that are in the tax code so we can have a fair and broader tax. What’s that going to do? That’s going to make us competitive with all of our neighbors.”
In response to questions last week about which exemptions or loopholes he would eliminate, how and when, Labrador’s campaign at first promised to respond, then issued this statement late Thursday afternoon: “Congressman Labrador will release his plan for a stronger Idaho after the first of the year. Specific details will be available at that time.”
Eliminating enough exemptions to cover hundreds of millions in tax cuts would be “very challenging,” Necochea said. “Once they get on the books, those tax exemptions are very sticky.”
Idaho leaders have sought for years to cut some of the many exemptions that riddle the state’s tax code. Two legislative interim committees in the past 15 years have held multiple hearings and tried to propose major changes, with little to no result.
The first of the two, in 2003, produced a 51-page reportdetailing all of Idaho’s sales tax breaks – which at the time totaled more than $1 billion and exceeded the entire amount the sales tax collected – and the arguments for and against getting rid of them. But the panel, led by then-Sen. Hal Bunderson, R-Meridian, reached an impasse and didn’t recommend actually jettisoning any of them.
In 2007, another joint legislative interim committee met through the summer and fall and proposed reconsidering an array of tax exemptions. But only three bills were introduced in 2008; one, to eliminate a tax credit for research worth $1.4 million a year, was vetoed by Gov. Butch Otter; another to do away with an additional investment tax credit for broadband equipment was sent back to committee before the House could vote on it.
The only one that passed and was signed into law repealed a never-used tax break that had been enacted to try to entice the Albertson’s grocery store chain to keep its headquarters in Boise; instead, the company was sold to Minnesota-based SuperValu.
Rep. Gary Collins, R-Nampa, who served on the 2007 interim committee and currently chairs the House Revenue and Taxation Committee, said, “It wasn’t hardly anything.”
“It always sounds good,” Collins said. But, he said, “There’s a very strong constituency for every one of those exemptions.”
Labrador’s “5-5-5” plan is reminiscent of GOP presidential candidate Herman Cain’s “9-9-9” plan in 2011. Cain suggested that if the current federal tax code were thrown out and replaced with new 9 percent taxes on income, business transactions, and sales, the nation would have an expanded tax base and lower tax rates. The new 9 percent federal sales tax would have come on top of state sales taxes, and the 9 percent income tax would have applied to everyone, even those who previously earned too little to pay federal income tax.
The Washington Post awarded Cain’s claim “three Pinocchios,” saying it actually would result in most Americans paying higher taxes.
Labrador’s proposal to move Idaho’s personal income tax rate to a flat 5 percent would mean a tax increase for lower-income taxpayers, as the state currently has seven tax brackets ranging from 1.6 percent to 7.4 percent. Forty-four percent of Idaho income tax filers pay less than 5 percent, according to state Tax Commission data.
Boise physician and developer Tommy Ahlquist is calling for a top-to-bottom review of all taxes. “How do we keep it flat and fair for families and small businesses in Idaho? That’s my philosophy going into this,” he said. “What’s the plan for tax policy – where do we want to be?”
But he does back some specifics. On the personal income tax, he said, “7.4 is too high. … We’ve got to drop that down to 5.”
Ahlquist said it doesn’t matter if people in Utah actually pay more at a 5 percent rate, due to differing definitions of taxable income and exemptions and the way Idaho’s income tax is structured. “I can tell you when you recruit companies to the state, they don’t think that,” he said. “They see a 7.4 percent personal income tax, they see we are not competitive.”
“I would say it matters to people,” Ahlquist said. “I would say as a guy that’s recruited companies, it matters a lot, it does. Every company that I have had in front of me here, that’s the second question they ask. First, they ask: Do you have enough kids to fill the jobs? And the next question is: I’ve looked at your personal income tax and your corporate income tax and they’re too high.”
That differs from former Idaho state Commerce Director Jeff Sayer, who told lawmakers two years ago that rather than cutting taxes, the state would get a better return from investing in a talented workforce.
Ahlquist also favors removing the state’s 6 percent sales tax from groceries – most states, including Washington, don’t tax groceries – and increasing the maximum exemption from the business equipment property tax from the current $100,000 per taxpayer per county to $250,000.
Lowering the top personal income tax rates to 5 percent would cost the state treasury $543 million a year. Ahlquist also favors lowering the corporate income tax rate, but by an unspecified amount. The grocery tax change, which includes eliminating the current grocery tax credit, has a $79 million annual price tag. And the change to the business equipment property tax would cost the state general fund about $9 million a year, if the state reimburses counties for their lost revenue; most such proposals include that state reimbursement, and Ahlquist said he doesn’t want to cause disarray in rural counties’ budgets. That puts the price tag for Ahlquist’s tax proposals at roughly $631 million a year.
Ahlquist said his changes likely would take place over “a few years, because you’re going to have to make sure that you’re also funding the things that are absolutely essential in our state.” He said those include education and infrastructure.
Ahlquist, who’s making his first run for elected office, decried the way tax policy is handled now in Idaho. During this year’s legislative session, he noted, an unemployment premium tax rate cut that would have saved Idaho employers $115 million over three years without costing the state general fund a penny was expected to pass; it was proposed due to growing reserves in the fund. But instead, it got caught up in end-of-session fights over whether it was better to lower income tax rates or eliminate the sales tax on groceries, and in the end, none ended up happening.
“We need to stop pulling things out of a drawer and shoving them through, slicing and dicing and Band-Aiding,” he said. “That’s what we do now. … Let’s talk about what is the best way to do it, the best way to have sources of revenue in Idaho, to use that money to pay for the things that we need to be done.”
Ahlquist also favors imposing a new spending limit on Idaho state budgets, tied to the level of personal income generated in the state. He notes that Idaho already has a personal income-based spending limit – thanks to a little-known law passed in 1980. But he contends that law was “rendered useless by a backdoor loophole.”
A clause in the original law exempts spending on new responsibilities the state takes on from the cap. The largest instance of that was in 2006, when the Legislature, in a special session called by then-Gov. Jim Risch, eliminated the basic local property tax levy that supported public schools, replacing it, in part, with a sales tax increase. The state took on $250 million more in spending that it previously had left to local funding sources.
Idaho has never run up to the existing cap, which is set at 5-1/3 percent of Idaho personal income, with one exception: During the deep recession of 2009, when the state’s personal income took a deep dive and the state cut millions from its budget, including from public schools.
Because that was just a few years after the $250 million addition for school funding, if the adjustment for additional state responsibilities hadn’t been allowed, the state would have been forced to cut an additional $100 million more from its budget that year, even as it already was slashing deeply. But the adjustment prevented that.
“We must eliminate this loophole to prevent the possibility of runaway government spending for generations of Idahoans to come,” Ahlquist declared.
The state Tax Commission meets as the Economic Estimates Commission each year to set the personal income forecast for the coming year, as required by the 1980 law, to ensure the cap isn’t exceeded. At this year’s meeting, which was held on Thursday, economists forecast moderate growth, based in part on in-migration to the state.
Necochea warned, “An arbitrary limit could have significant unintended consequences.”
In August, Little released a slate of tax-cut proposals, topped by a $350 million cut in Idaho’s personal and corporate income taxes. That big cut would come over time, Little said, with 1/10 of a percentage point cut from the rates each year that state revenues come in strongly enough to cover the $28 million cost, and still “fulfill our commitment to education.” In years when revenues couldn’t cover both, he said, he’d hold off.
If the personal and corporate income tax rates were reduced by 1/10 of a percentage point every year, it would take 12.5 years to add up to $350 million. At that point, Idaho’s top personal and corporate income tax rate would have dropped from the current 7.4 percent to roughly 6.15 percent.
“We’d get in the sixes in four years,” Little said. “With this year’s growth, it looks like you could take two tenths off. But you’ve got to have an agreement on education, and you’ve got to have an agreement with the Legislature. If I was governor, I’d start talking to leadership, particularly in the House where the tax bills come from, and then I’d roll it out at the Associated Taxpayers.”
The Associated Taxpayers of Idaho’s annual conference is held in early December each year, and traditionally is a run-up to the legislative session that’s attended by many legislators, state and local government officials, business people and lobbyists. It’s not unprecedented for major tax proposals or concepts to be unveiled there.
This year’s conference is set for Wednesday; Little, Ahlquist and Labrador all are scheduled to speak on tax policy.
Little acknowledged that due to the structure of Idaho’s income tax system, Idahoans actually pay less at the current 7.4 percent rate than Utah taxpayers pay at their 5 percent rate, but said he favors lowering the rates anyway if the state can afford to do so. “I’m interested in what the barriers are to people keeping more of their own money and growing income,” he said.
Little also favors eliminating the sales tax from groceries; increasing the personal property tax exemption for business property from the current $100,000 per county to $250,000 per county; and requiring that all new tax exemptions be linked to proportional reductions in state spending.
In addition, he, like Ahlquist, favors the unemployment insurance premium tax cut for employers that lawmakers failed to enact this year. That measure would have no impact on the state general fund.
If Little were elected governor, the cost of his tax proposals in his first year would come to just under $116 million – $27.9 million to lower the top personal and corporate income tax rates by a tenth of a percent; $79 million to eliminate the grocery tax; and $9 million for the business equipment property tax break. If he lowered the personal and corporate income tax rates a tenth each year during a four-year term, the annual cost to the state general fund by the fourth year would grow to just under $200 million.
“We are right on the verge of being in a position where we can lower our rate, knock that nominal rate down,” he said, “because we keep exceeding our revenue expectations because of the growth. That’s what people expect. We need to put money away for a rainy-day fund, but it’s also prudent that we lower that rate.”
Little said his plan wouldn’t be a “massive change,” saying, “I think it’s the right thing to do, given the fact that right now, people are paying more tax than we anticipated because of the incredible success of our economy.”