In Idaho, responsible budgeting and fiscal prudence have served us well. Stable fiscal policies in recent years have generally supported economic growth and produced critical revenues post-recession. While additional investment is needed to fully fund a number of broadly shared priorities (such as education, health care, transportation and public defense), our state’s finances have been predictable. By contrast, at least 30 other states are facing shortfalls and budget cuts.
But a tax and budget proposal in Congress takes a different approach that will have serious consequences for Idaho’s budget, counties, and households.
The U.S. Senate Budget Committee is considering a federal budget resolution that would allow Congress to pass $1.5 trillion in tax cuts that aren’t paid for. The approach, also known as deficit-financed tax cuts, means the federal government will essentially borrow money — on top of existing deficits — to pay for tax reductions, rather than finding a way to pay for them with responsible tax changes.
The rise in deficits from the tax cuts would put pressure on investments that have a strong relationship with long-term economic growth. Investments such as schools and higher education, defense and medical research would likely be subject to cuts.
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That in turn could put Idaho’s budget on the hook for maintaining current investments and pursuing new goals, such as ensuring that 60 percent of our young people complete postsecondary training or education. Basic public services provided by counties, such as law enforcement, roads and bridges, and emergency response, could also be reduced.
Like all tax changes, this plan has winners and losers. Under the tax framework unveiled on Sept. 27, the state and local tax deduction would be eliminated. This tax deduction alleviates pressure on property taxes and helps counties keep their budgets whole. Eliminating this tax deduction could harm local governments and especially rural communities, which rely on other funding streams that are also under threat.
Early analysis from the Tax Policy Center shows that tax benefits would primarily go toward the households that need it the least. The top 1 percent of households (those making $730,000 or more) would receive half of all the plan’s tax cuts while middle-income households (those making between about $50,000 and $90,000) would receive about 8 percent of the total benefit. The distribution would shift even more toward wealthy households down the road.
Revenue-neutral approaches to tax reform make better sense and have been used in the past at the national level. Tools such as broadening the tax base and closing tax loopholes suggest a more fiscally responsible way forward and have broad political support.
It is often said that our state economy is the caboose on the national economy train. That means that federal tax and budget decisions are just as important as state-level ones. These decisions are worth making out in the open, with clear information and a balanced approach. Policymakers should take lessons from the Idaho experience and carefully weigh federal tax changes before letting the train get too far ahead.
Alejandra Cerna Rios is a policy analyst for the Idaho Center for Fiscal Policy.