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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

State tax system demands analysis

The Spokesman-Review

Idaho Rep. Maxine Bell called it the “perfect storm.”

The Jerome Republican was referring to the massive decline in revenue that combined with the huge 2001 tax cut to stagger the Idaho economy and force the Legislature to clean out rainy day budgets and approve stopgap measures for the next four years. Idaho lawmakers were warned at the time to forgo the cuts, the result of an anticipated surplus of about $330 million. The state economy was slowing as the two chambers wrangled over the size of the cuts.

Luckily, Gov. Dirk Kempthorne and wiser heads prevailed, and the Legislature approved a package of $108 million in permanent and one-time cuts. It’s hard to imagine the damage that would have been done if myopic House Republicans had had their way in pushing for some $200 million in tax cuts. Legislators have balanced the budget, as required by state law, during the past four sessions by temporarily raising the sales tax by 1 cent, by eschewing raises for state employees and building maintenance projects, by short-changing universities, and by tapping state savings accounts.

Now, with state revenues rebounding so strongly that they set a record for April, Idaho could recover totally from the “perfect storm” by the end of fiscal year 2006-07. Idaho lawmakers should pause to congratulate themselves for the tough decision-making and good fortune that enabled them to wade out the storm. But they shouldn’t allow themselves to relax until the next economic tumult. Lawmakers should use the calm between crises to analyze and tweak the state tax system to eliminate structural defects.

Idaho has seven of the 10 risk factors for long-term structural deficits, according to the Center on Budget and Policy Priorities in Washington, D.C. In a Sunday story, Betsy Russell of The Idaho Spokesman-Review listed some of the risks: failure to cover services with the state’s sales tax, offering tax preferences to seniors regardless of income level, and raising regressive taxes such as sales, cigarette and property taxes, while lowering more progressive taxes, including income and corporate taxes.

The chances are good that Idaho legislators could continue to hold the tax system together with their chewing-gum-and-baling- wire approach to planning if it weren’t for two clouds on their horizon: growing discontent for education funding and for property taxes in popular areas, such as Coeur d’Alene, Post Falls and Sandpoint. Approval of a statewide initiative to increase education funding or limit property taxes, or both, would send the state into another economic tailspin.

Idaho lawmakers have been known to drag their feet while important funding decisions rush at them. In the last session, the ultraconservative House Revenue and Taxation Committee torpedoed one property tax relief bill after another while residents protested increased taxes on the courthouse steps in Bonner and Kootenai counties. Fortunately, Kempthorne and legislative leaders understand the importance of reworking the state’s tax system.

Action now could reduce the impact of the next economic hurricane season.