A tax policy analyst told Idaho’s leading policy watchdog group that the state benefits from relatively low taxes but needs to modernize and simplify its tax code in fundamental areas, especially its low threshold, seven-tier personal income tax.
Analyst Jared Walczak of the Washington, D.C.-based Tax Foundation told the Associated Taxpayers of Idaho conference that the state’s income tax “still reflects a legacy put in place at a time when the average income was significantly lower than it is now.”
State personal income tax rates start at 1.6 percent at a taxable income of just $1,454. The top rate of 7.4 percent kicks in at an income of $10,905.
“If you care about keeping taxes low, the fewer the brackets, the easier it is to manage,” Walczak said. He said policymakers could mitigate tax impacts that consolidating rates might have on lower income wage earners by implementing earned income tax credits or a zero tax bracket for the lowest group.
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Walczak said sales tax modernization should also look at implementing taxes on services as well as goods, reflecting the broader transition to a more service-based economy. Such a change, however, should avoid creating tax pyramids, such as taxing business-to-business sales on top of sales to end-users.
The analyst also noted that unemployment insurance taxes businesses pay in Idaho are the fourth highest in the nation and nearly twice the national average. The unemployment tax wage base, the upper threshold for determining what businesses pay, is set by state law.
“Idaho is doing well on tax collections,” Walczak said “But there are structural reforms that are possible here.”
The organization recently ranked Idaho 20th among states for its overall business climate.
The taxpayers group, hosting its 70th annual conference, also heard the head of one of Idaho’s leading real estate investment and development firms press the business case for loosening requirements for public borrowing to finance infrastructure investment, development and urban renewal.
Cortney Liddiard, CEO of Idaho Falls-based Ball Ventures, also noted that revenue from the unemployment insurance tax also funds vital workforce training programs and that the state economy needed better-skilled workers.
“Idaho’s strong economy has already led to a shortage of available skilled workers,” Liddiard said. “Bottom line, the state’s economic growth is seriously constrained by the shortage of skilled talent.”
Lt. Gov. Brad Little kicked off the daylong conference, which includes a noontime address by Gov. Butch Otter.
Little noted that the Republican election sweep this month created a “turning point for America.”
“I ask you, taxpayers of Idaho, let’s wrest control from the federal government and return it to the state and the people,” Little said.