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Idaho Commerce chief: Don’t cut taxes, invest in talent

UPDATED: Tue., Oct. 6, 2015, 10:34 p.m.

BOISE – At its first public meeting Tuesday, a panel of a dozen Idaho legislators looking into possible tax-relief plans heard some surprising counsel from the state’s commerce chief: Don’t cut taxes.

Instead, outgoing Commerce Director Jeff Sayer urged the lawmakers to invest in a more talented state workforce.

“Four years ago, I would have said, yes, we need to have lower taxes to make ourselves competitive,” said Sayer, an entrepreneur who recently announced he’ll leave his post at the end of the year to return to the private sector. “I’m here to tell you, what we’re seeing is the return for the state is not lowering taxes, it’s investing in talent.”

He said he still believes lowering taxes is a good idea in the long term, but not right now – the state will get more return by investing in a more talented workforce, he said.

Sen. Steve Vick, R-Dalton Gardens, who used the meeting to call for eliminating Idaho’s income tax entirely, said of Sayer, “He certainly has changed his tune. He was the one that was pushing for tax cuts. I’ll just leave it at that.”

Others on the panel welcomed Sayer’s message.

“There’s no question that there’s a talent shortage out there,” said Rep. Gary Collins, R-Nampa, the House tax chairman. However, he said there’s a “political reality” that lawmakers still must examine cutting taxes.

“We had a surplus last year in our budget,” Collins said. “There are going to be those that feel this is the time to take a harder look.”

The Tax Working Group started as a series of discussions between legislative leaders over the summer, which gradually grew until the leaders asked Collins and Senate Tax Chairman Jeff Siddoway, R-Terreton, to each appoint five other lawmakers to the new panel. However, when the group held its first meeting Sept. 17, the only public announcement was a little-seen paper notice in the state Capitol, and the meeting wasn’t publicized or live-streamed on the Internet like other legislative panels.

Siddoway and Collins made sure Tuesday’s meeting was, and said all subsequent meetings of the group will be public. Siddoway said the group also will likely hold public hearings at some point to draw more input.

It was prompted by legislation that passed the House last year, with strong support from House GOP leaders, to lower Idaho’s top income tax rate from the current 7.4 percent to 6.7 percent, out of concern that the top rate is a disincentive for companies to look at relocating to Idaho. The bill died without a hearing in the Senate. The new group is intended to get both House and Senate members together to figure out what direction the state might want to take on tax policy, instead of waiting until an end-of-session showdown between the two sides.

Documents released last week, from the earlier meetings of the group, show ideas under consideration include moving to a flatter state income tax, like Utah’s single-rate 5 percent system, and cutting Idaho’s top rate while keeping state revenues the same – by raising taxes for middle-income earners.

That idea drew criticism at Tuesday’s meeting. Sen. Lori Den Hartog, R-Meridian, noted that Idaho raised its gas tax and car registration fees in the last legislative session.

“That is particularly hitting our middle-income folks,” she said. “So in relation to what we did last year, I personally am not willing to look at just a buydown of our top rate for the benefit of our top ratepayers, knowing that we increase the burden on our middle-income folks to a greater extent.”

She said she’d favor modernization of Idaho’s sales tax.

“We have a different type of economy. We have different types of transactions that are going on,” she said.

Rep. Robert Anderst, R-Nampa, said he asked legislative staffers to research another piece of the puzzle: How Idaho’s spending on government services compares with other states. The answer is Idaho is “dead last in per-capita spending” on state and local government, he said. “So I think that is both something that we can be proud of in the sense that we are a conservative state, we keep spending under control. But I think it also goes to what the commerce director’s point today was, was we also need to be cautious about investing in the future.”

The panel heard

a presentation from legislative budget analyst Keith Bybee about how Idaho taxes compare to those in other states. Using Census data from 2012, he found that as a percentage of personal income, Idaho’s state tax burden is 41st in the country. Its personal income tax ranked 30th by the same measure; its sales tax 28th; and its property tax 38th.

Sayer said a “war for talent” has been growing among big companies across the nation. Idaho companies looking to expand and out-of-state businesses looking at relocating to Idaho are now saying availability of skilled workers is the top factor in their decision-making.

“My point is simply this – in all of those conversations we’ve had with industry leaders, not one of them has brought up tax rates,” he told the legislators.

“We need to invest in talent pipelines,” Sayer said, citing Boise State University’s computer science department as an example – tech companies are watching closely as the program moves to quadruple its graduates per year from 25 to 100. “We need to make specific tactical investments that draw industry and education together.”

The panel will meet again Oct. 14 and Nov. 3. Among the agenda items for its next session: Each member is being asked to point to areas of Idaho’s tax system they’d like to fix; there will be a report on what it would take for Idaho to tax Internet sales; and the group will review existing income tax brackets.

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