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2012 Legislature: Another year, another tax cut gamble

Statesman Editorial board
March 30, 2012
Idaho Statesman

They're at it again. The Idaho Legislature has passed another tax cut, hoping it will pay off.

This time, lawmakers put $35.7 million on the line.

The only sure thing is this: The income tax reductions helped the 2012 Legislature adjourn Thursday. The tax cut was, in Statehouse parlance, a "going-home bill." It is part of a three-pronged budget compromise, along with a $35 million deposit in state rainy-day accounts, and $35 million spending bill backfilling teacher salaries.

The Senate OK'd the tax cut Thursday afternoon on a 28-7 party-line vote. But the defining moment came that morning, when the Senate Local Government and Taxation Committee voted to send the "going-home" bill to the floor. During this hearing, the unknowns were painfully apparent:

* Will tax cuts really create jobs? The most enthusiastic argument for the tax cut goes as follows: By cutting its corporate tax rate, and the high-end personal tax rate applied to many small businesses, Idaho will show that it is open for business.

But there is no empirical proof that the cuts will attract new business. The best anyone could say, essentially, is that cutting the tax rate has to be better than not cutting the tax rate. Republicans placed their faith in providing tax relief - even nominal or barely noticeable tax relief - to those in a position to hire. Said Senate President Pro Tem Brent Hill, R-Rexburg, "If it creates a job and you have a paycheck, those people are going to notice."

* What about tax reform? The supporters do have a valid point: Idaho's income tax rates are higher than its neighbors'. That's simply not good tax policy.

It would be easy to support an income tax cut - even a deep, far-reaching cut - were it offset by eliminating some of Idaho's $1.7 billion in sales tax exemptions, especially the narrow breaks that favor a small-business sector.

Sen. Dan Johnson, R-Lewiston, a swing vote in the committee, supported the tax cut but conceded the state needs to broaden its tax base.

Johnson, an appointee serving his first session, is perhaps unfamiliar with the history. For years, legislators have talked a good game about repealing exemptions but have never found the spine to stand up to special interests and do it. Why would next time be any different than previous times?

* Can Idaho afford it? Retiring Sen. Jim Hammond, R-Coeur d'Alene, voted to send the bill to the Senate floor. But at the time, he said he remained noncommittal. "I still need to be convinced that we can afford to do this."

Same here.

Because the Legislature found no way to offset an ongoing income tax cut - through the repeal of some sales tax breaks, or from some other source - lawmakers are banking on revenue growth. This is, in essence, a postdated check.

And the Legislature's record is frightful.

In 2001, lawmakers insisted on a permanent income tax cut; in 2003, they had to agree to a temporary sales tax increase to cover the red ink.

In August 2006, lawmakers raised the sales tax permanently, while pushing through a statewide property tax cut and pledging to make up the difference for public schools. They didn't, forcing many of Idaho's 115 school districts to go back to voters, appealing for property tax levies to make up the difference.

Fast forward to 2012. Another tax cut. Another wager. If you aren't skeptical, you haven't been studying your history.

"Our View" is the editorial position of the Idaho Statesman. It is an unsigned opinion expressing the consensus of the Statesman's editorial board.

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