After weeks of huffing and puffing about Gov. Brad Little’s so-called tyranny, wiser heads in the Idaho Legislature finally turned attention last week to the substantive matter of reducing citizen’s taxes.
It’s a good first draft, incorporating the critical principles of leaving money in Idahoans’ pockets, while maintaining sales taxes on consumer goods but reducing the overall rate by close to 12 percent. The tax you pay on most consumer purchases would decline sharply. What’s not to like about that?
House bill 199 which runs some 17 pages, was introduced in the House Revenue & Taxation Committee, where it will get closer scrutiny, but as it has House leadership’s blessing, key Senate support and is close to what Gov. Little has proposed, its broad outlines seem more or less secure.
Sure, there will be critics who have their own ideas of what Idaho’s tax profile ought to look like. Many Democrats want to see an Idaho economy more like California’s, with bigger and more expensive government programs to help the needy, pay educators more and expand numerous social services. (TN, 2/17) A fair amount is either waste or coddling of special interests.
Rightists generally want to shrink government, reduce law enforcement, legalize “recreational” drugs, force the needy further onto the backs of churches and non-profits, eliminate public schools, slash state and local government pensions, limit health care and generally and impose a you’re-on-your-own economic Darwinism on everyone.
But neither of these extremes are dominant in the Idaho Legislature, where common sense conservatism usually carries the day. We do what we can afford to do, being neither chinczy nor spend-thrift. Both liberals and hard-rightists complain, but this middle course has served us well.
That measured, pragmatic approach has given the state one of the best economic growth profiles in the nation, with a nice $600 million surplus despite the COVID pandemic and a balanced, three-legged stool of taxation spread among sales, income and property assessment.
One key part of the proposed tax reduction would drop income tax rates across the board, for all income taxpayers, to 6.5 percent. Sure, this would help high-income folks more, but they now pay proportionately higher taxes for top incomes. Reducing the rate benefits all.
The proposal follows an income tax reduction in 2018, which like this plan, left more money in people’s pockets rather than funding bigger government as many liberals want. Many studies show that driving down tax rates attracts new residents, new business and expansion and thus propels further growth (Rich States, Poor States, 2020 report).
Another section would decrease the sales tax on consumer purchases from 6 percent to 5.3 percent (Associated Press, 2/16) A $15,000 auto bought at 6 percent carries an Idaho tax of $900. Under the new plan, the tax would drop to $795, a savings of more than $100. Who wouldn’t like that? Taxes paid on groceries would remain in place, but the overall rate would drop along with other purchases. Tax committee chairman Steven Harris, R-Nampa, is right when he says most Idahoans would pay less tax overall in the new proposal. (Idaho Press, 2/16).
In the Bernie Sanders world of sick-it-to-the-rich and among some rightists, eliminating the food tax” is a Holy Grail of tax reform. But a significant percent of so-called “grocery tax” is spent on fast foods and sodas. Dropping the tax would only encourage their consumption and would give out-of-state travelers a “free” trip across Idaho. You can observe this pattern at any travel store with customers buying both gas and armloads of travel snacks to go.
House Bill 218 offers another tax reduction plan, to phase out the personal property tax over a decade. Known as the ‘pots and pans” tax, its usefulness has declined over the years and the record-keeping is immense.
It’s time to let it expire.
While the House works on income and sales tax reductions, senators are looking at ways to reduce local property taxes, which have escalated rapidly in many places and threaten to drive fixed-income residents from their home taxs. Several main ideas are under consideration, including allowing higher home-owner deductions, collecting so-called “impact fees” on new construction, and tightening government spending limits for cities and counties.
It’s a tougher nut to crack because local entities, including schools, depend on property taxes for much of their operations and local bonding for capital expenditures like jails, courthouses and education facilities.
Yet, with valuations of property increasing, residents are rejecting more bonding proposals.
Proposals to tighten or cap costs has been sharply opposed by local entities, but there’s plenty of evidence that local government spending needs firmer controls. Legislators are heeding a rising cry by homeowners and others about huge local tax increases, but finding the right balance isn’t easy. Too little control would likely spark tax revolt initiatives, but too much control would harm local government’s many services. Idaho generally has lower property taxes (34th in 2020 Tax Foundation report) than many other states, but that’s cold comfort when annual increases are often over 15 to 20 percent.
The good news is that the state remains near the top for fiscal responsibility and prudent handling of tax policy, both revenue and spending. We should count that as a decided blessing.
Stephen Hartgen, Twin Falls, is a retired five-term Republican member of the Idaho House of Representatives, where he served as chairman of the Commerce & Human Resources Committee. Previously, he was editor and publisher of The Times-News (1982-2005). He is the author of two new books on Southern Idaho, “Tradition & Progress: Southern Idaho’s Growth Since 1990.” and “Spirit of Place: Southern Idaho Across Generations.” He can be reached at Stephen_Hartgen@hotmail.com