With the Senate expected to take up the income tax bill this afternoon, here is a draft of our Friday editorial on the Legislature's "going-home" bill. We'll update based on developments later today.
They’re at it again. The Idaho Legislature is preparing to pass another tax cut, hoping it will pay off.
This time, lawmakers are putting $35.7 million on the line.
The only sure thing is this: The reductions in the personal and corporate income tax rates will allow the 2012 Legislature to adjourn. The tax cut is, 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 to backfill teacher salaries.
When the Senate Local Government and Taxation Committee convened Thursday morning to discuss the tax proposal, the unknowns became readily apparent:
• Will tax cuts really create jobs? The most enthusiastic argument for this plan 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 income tax cut will attract new business. The best the sponsors could say, essentially, is that cutting the tax rate for businesses has to be better than not cutting for businesses. Republicans endorsed the idea of 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 of the tax cut have a valid point: Idaho’s corporate and personal income tax rates are higher than its neighbors. That’s simply not good tax policy.
It would easy to support an income tax cut — even a deep and far-reaching income tax cut — if it were offset by eliminating some of the state’s $1.7 billion in sales tax exemptions, especially the narrow tax breaks that favor a small business sector.
Sen. Dan Johnson, R-Lewiston, a swing vote on the tax bill, supported sending the income tax cut to the Senate floor. But he said Idaho needs to broaden its tax base and study the exemptions.
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 tax cut bill to the full Senate Thursday morning — but was noncommittal about supporting it on the Senate floor. “I still need to be convinced that we can afford to do this.”
Because the Legislature has found no way to offset the income tax cut — through the repeal of some sales tax breaks, or from some other source — lawmakers are hoping revenue growth will cover the ongoing tax relief. This is, in essence, a postdated check.
And the Legislature’s record in this area 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 pushed through a statewide property tax cut and pledged to make up the difference for public schools. They didn’t, leaving 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.