Big tax overhaul set to begin

BOISE – If Idahoans want to have a say on major changes in the state’s tax system – including a proposed property tax cut and a sales tax increase – they need to contact their legislators in the coming weeks.

“Now is the opportunity to provide input,” said Rep. George Sayler, D-Coeur d’Alene, the House assistant minority leader.

“It’s important,” said House Speaker Bruce Newcomb, R-Burley. “If they’re the kind of person that’s engaged in the political process, they need to engage, go on the governor’s Web site, read through it and see what they think, and get a hold of their legislators if they have concerns one way or the other.”

Some public testimony will be taken when lawmakers gather for a one-day special session on Aug. 25 to consider Gov. Jim Risch’s tax plan, but it will be limited. The Republican governor and lawmakers are hoping people will get in touch with their local state senator or representative in the month between now and then, so the lawmakers will be ready to decide.

“I think we need to hear from the people,” Sayler said.

Risch has proposed immediately eliminating the $3 per $1,000 property tax levy that funds basic school operations – a move that would cut property taxes by $260 million a year. He also proposes raising the sales tax by 1 percent, making it 6 percent, to replace $210 million of the lost school funding; and shifting $50 million from the state’s current $203 million budget surplus to make up the rest. He’d also put another $100 million into a school savings account to hedge against future economic downturns, and he’d ask voters in November, in an advisory ballot measure, whether they like the changes.

“He wants people to take a look at the proposal,” said Risch’s communications director, Brad Hoaglun. “The fact of the matter is, this’ll be property tax relief, but everyone will be different when it comes to their own personal economic benefits. … If people want to know how much benefit it is to them, they need to sit down and calculate it out for themselves.”

The key is how each family’s property tax savings compare to how much more it would spend on sales tax. State Tax Commissioner Duey Hammond, using regional and national studies and state figures, calculates that the owners of a $225,000 owner-occupied home in the Coeur d’Alene school district would see a $387 property tax cut. If they spent less than $38,693 on purchases subject to sales taxes in a year, they’d come out ahead. They’d have to spend more than that amount to end up with a net tax increase.

Hammond calculated that overall, for all classes of property owners, taxpayers would keep about 25 percent of their savings from the property tax cut after they’ve paid the increased sales tax.

Because property taxes are deductible on federal income tax, “There could be income tax consequences if you itemize, and it will reduce the benefit somewhat,” Hammond said. However, only 31 percent of Idaho income taxpayers itemize.

Democrats have proposed an alternative plan: Just using $104 million from the surplus to replace the school property tax levy for homeowners only, and not raising the sales tax.

“We don’t object to a special session,” Sayler said. “We certainly support property tax relief. We wanted to have our plan considered also.”

He said Democrats wanted to target homeowners only because owners of residential property have been picking up an increasing share of Idaho’s property tax burden in recent years – 63.2 percent of the total taxes in 2005, up from 55 percent in 1996 and 47.1 percent in 1990. Meanwhile, the share paid by commercial, agricultural, timber and utility property has dropped.

“We think we’re giving the tax relief where it’s most needed,” Sayler said. “It hasn’t been the business community that’s come to us and said ‘help, help, help’ – it’s been the homeowners.”

Risch’s bill is the only one that lawmakers will consider in August, but any bill can be amended. Sayler said he didn’t know yet if Democrats would try to amend the bill.

Said Newcomb, “That’s one of the motions they can make. But the fact is, the governor’s bill – if there’s a bill out there that’s going to pass, that’s the only one I know that’s probable.”

Hoaglun said, “The governor has said all along he doesn’t want to call a special session to talk about property tax relief, he wants something done about it. And he’s worked to cobble together a consensus that he believes will pass the special session. While there are lots of ideas out there, most of those ideas are just that, they’re ideas, and they have no chance of passage.”

For now, Hoaglun said, it’s up to legislators, and people should tell them what they want. “That’s the whole purpose in the governor announcing it a month early, that people would have a chance to contact their elected representative and let them know if they’re in favor of that or not.”