Study: Initiative A Peter-Paul Story Analysis Shows 1 Percent Cap On Property Tax Would Only Increase Burden On Income Tax

As the angry rhetoric over property taxes in Idaho has risen, the actual share of personal income those taxes claim has been declining and personal income taxes are picking up the slack, a new study shows.

In fact, the analysis indicates Idaho’s reliance on property tax revenues to finance government has fallen even further below the national average than it was in the late 1980s.

Interestingly, the trend has been the same for corporate taxes.

“The Idaho tax system traditionally has tended to rely too little on property tax,” tax policy analyst Alan Dornfest wrote in the latest comparative tax potential study.

The findings also underscore the warning from Gov. Phil Batt that if the One Percent Initiative is approved by voters, it will not eliminate hundreds of millions of dollars in property taxes. Instead, it will just shift the responsibility for generating that cash to other taxes.

The governor has even suggested that the business community could well be the target for replacing any property tax revenue lost to the initiative.

The comparative tax analysis points out that prior to its historic 1978 property tax revolt, California was collecting about $3.3 billion more than the national average from property taxes, and now it is collecting $3.4 billion less. But there was really only a shift, because the state is now collecting $2.4 billion more than the national average in sales taxes and $2.7 billion more in income taxes.

Anti-tax activist Ron Rankin, author of the initiative and a similar proposal overwhelmingly rejected by voters in 1992, claims the property tax burden has gotten only heavier and is now driving people from their homes.

He has steadfastly maintained that budget cutting and the setting of spending priorities will accommodate the impact of the initiative - a contention Batt staunchly disputes.

The measure would shift about $220 million in public school support from the property tax to the state general treasury, which gets more than 80 percent of its revenue from sales and income taxes. It also essentially directs the Legislature to implement a system to cap property taxes at 1 percent of taxable value, reducing property tax collections for local governments by an estimated $75 million more.

Despite Rankin’s claims of an increasing burden, the new tax analysis, using 1993 information that is the most recent available, shows that Idaho’s taxing effort - based on personal income - has been essentially stable since the late 1980s compared to the national average. Idaho has been taxing at just over 95 percent of that rate. In 1993, that was $107.10 per $1,000 of personal income.

But property taxation generated only 78.9 percent of the national average rate in 1993, down from 86.8 percent in 1989. That translated into $28.20 per $1,000 of personal income compared to $29.30 in 1989. Idaho ranked 38th among the 50 states and District of Columbia and ninth among the 11 western states, down from 32nd nationally and eighth regionally in 1989.

Over the same period, the corporate tax effort dropped from 87.4 percent to 74.6 percent of the national average - from $5.40 per $1,000 of income to $3.70.

At the same time, however, individual income taxes, which were already running more than 12 percent above the national average in 1989, jumped to 18 percent higher than the average in 1993. That was an increase from $26 per $1,000 of personal income to $27.60.

The sales tax effort remained unchanged at $26 for each $1,000, just under the national average.

The analysis also re-emphasized the balance of Idaho’s tax structure - property taxes and individual income taxes each generating about 26 percent of all government revenue and sales taxes about 24 percent. The rest comes from corporate, motor vehicle and miscellaneous taxes.

“When observed on a regional basis, we are in the somewhat unusual position of relying on three major taxes as opposed to the systems hinged on only two taxes that are found in each of our border states except Utah,”’ Dornfest wrote.

“On the basis of taxes paid per person, the breadth of the Idaho system produces the effect of being moderately low in most specific tax types while ranking our overall tax burden 39th highest nationally and 10th highest in the 11 western states,” he wrote.