Tax cut plans reach the statehouse, with maybe the best chance in years

With a pair of tax cut proposals introduced in the Idaho Legislature, the cadre of loyal tax foes in the House of Representatives is showing its determination to give the people of Idaho tax relief — whether they asked for it or not.

The proposals came from the House’s new Mr. and Mrs. Tax Cut: Reps. Mike Moyle, the House majority leader, and Janet Trujillo, who recently married. Moyle’s plan would exempt the first $750 in income from any taxes and cut the top personal income and corporate rates from 7.4 percent to 7.2 percent, at a cost of $51 million in forgone revenue.

Trujillo’s bill would address the state tax businesses pay on equipment, raising the exemption to $250,000 from $100,000. That would reduce tax revenues by an estimated $8 million.

The two proposals will start their path through the Legislature with full hearings before the House Revenue and Taxation Committee, probably in the coming week.

That combined $59 million may seem like a lot, but it represents less than 2 percent in a state budget of around $3.5 billion. But perceptions count for more than actual dollars, as tax cut proponents seek to address what they see as Idaho’s disadvantage on tax rates compared to neighboring states.

Outside the Statehouse and among the usual anti-tax constituencies, few seem to be clamoring for lower income taxes. The business community continues to press for more state investment in education and job training as the best driver for improving the economy. And responses in the state public policy survey by Boise State University last month put taxes second-to-last in terms of importance. Two-thirds of respondents said Idaho taxes are about right; 23 percent said too high and 9 percent said too low.

“The results of our survey don’t indicate that there’s a high demand for more tax relief,” said Justin Vaughn, associate professor of political science at BSU’s School of Public Service. “There’s kind of this consensus in all the ways that we asked about taxes.”

The drive for tax cuts comes amid an apparent multiyear run of state budget surpluses. Current-year projections forecast $139 million not spent when the fiscal year ends in June. In the BSU survey, 46 percent of respondents said the extra money should go to education, 24 percent said the state should put it in the bank, 17 percent said it should go to road and bridge improvements in Idaho, and 9 percent said it should go to tax relief.

“They were more interested in putting the surplus in the bank,” Vaughn said.

Surpluses ranging from $45 million to $139 million between 2011 and 2016 can be misleading. They are not necessarily windfalls. They are built into each year’s state budget, and they build upon the balance from the prior year. And in spite of what BSU survey respondents might want, surplus funds don’t go to cover ongoing operating expenses or revenue reductions such as tax cuts.

“A one-time surplus is not a strong basis for a permanent change to the tax structure,” said Lauren Necochea, director or the Idaho Center for Fiscal Policy, a progressive, nonpartisan research group.

The center’s initial analysis of the Moyle tax proposal, which gives it a higher estimated price tag of $56 million, also shows:

▪ 69 percent of Idaho households would see a tax cut under the proposal, with 31 percent seeing no benefit.

▪ Households with incomes between $38,000 and $59,000 a year would see a $32 decrease in their tax liability on average. The top 1 percent of households, with incomes of $418,000 or more, would see an average $1,562 tax cut.

▪ The top fifth of all earners, with incomes of $92,000 and above, would receive two-thirds of the monetary benefit.

▪ 81 percent of the corporate income tax cut benefit would go to out-of-state interests, with just 19 percent going to Idaho households owning stakes in companies that pay the tax.

Still, this might be the year that Moyle and his allies get what they’re after. This year’s plan is simpler than those in preceding years, with fewer moving parts, and it didn’t receive the kind of “Dead on Arrival” reaction from Senate leaders as its predecessors have.

Lawmakers are eager to deliver something to taxpayers. They still have to decide what to do about paying for transportation projects with extra surplus, provisions for which expire this year. And this year’s cost of increasing teachers’ salaries is the largest over five years. But this might be the year legislators stretch do it all.

This story was originally published January 29, 2017 at 8:26 PM with the headline "Tax cut plans reach the statehouse, with maybe the best chance in years."