Even as Idaho politicians continue to call for tax cuts, a new state study shows Idaho’s overall taxes are the lowest in the region and rank 48th in the nation.
The annual Tax Burden Study, which the Idaho State Tax Commission has prepared each year since the 1970s, shows that Idaho’s total state and local tax burden per person ranks 48th among the 50 states plus the District of Columbia, and falls 29.6 percent below the U.S. average. It’s the lowest among 11 Western states.
The state’s tax burden relative to income — an important difference because Idaho incomes are much lower than most states — still ranks 37th nationally and 10th among the 11 Western states. It comes in 11 percent below the national average.
Yet Idaho politicians, including Gov. Butch Otter and all three of the leading GOP candidates to succeed him in next year’s election, are calling for cutting Idaho’s personal and corporate income tax rates. U.S. Rep. Raul Labrador, a candidate for governor, has made it a standard stump line on the campaign trail to claim that Idaho has “the highest taxes of any of our neighbors.”
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But tax rates alone don’t tell you how much people are paying. And in Idaho, where the top personal income tax rate is 7.4 percent, taxpayers are actually paying less in state income tax than in Utah, where the top rate is 5 percent. That’s because the two states’ income taxes are structured differently, both in how they define taxable income and in their deductions and exemptions.
“That’s the problem with looking at the tax rate instead of the effective rate,” said Jasper LiCalzi, a professor of political economy at The College of Idaho. “Just looking at the raw rate is quite misleading. You have to look at the effective rate: What do people pay?”
Not only does Idaho’s overall tax burden rank much lower than its neighbors and nearly every state, those rankings have barely changed since the study’s been compiled each year over more than three decades. In 1984, the first year the report used the current methodology and thus is precisely comparable, Idaho ranked 47th in the nation for its per-capita tax burden, and 39th for its tax burden compared to Idahoans’ incomes.
“It’s almost identical,” said Alan Dornfest, a bureau chief for the Tax Commission who’s worked on the study every year and joined the commission in 1977.
There have been some shifts over the years, he noted, particularly in 2006, when Idaho slashed property taxes and raised its sales tax. But those changes have largely resolved.
Overall, “Idaho’s revenue and taxation picture is typified by moderate-to-low overall taxes and a broad structure, with good balance between tax components,” Dornfest concluded in the latest study, which uses fiscal year 2015 figures. “Idaho relies principally upon three major taxes: Income, sales and property.”
In 2015, the state raised 28.1 percent of its overall state and local tax revenue from property taxes; 29.8 percent from income taxes, both individual and corporate; and 25.8 percent from sales taxes.
For individual income taxes, Idaho ranks 33rd in the nation per capita, 22 percent below the national average. For income taxes per $1,000 of personal income, Idaho ranks 27th, 1.4 percent below the national average. Utah was 26th per capita, and 16th per $1,000 of personal income.
Washington, by contrast, has no personal income tax. But its overall tax burden per resident ranked 18th in the nation in 2015; compared to its residents’ incomes, the burden ranked 35th.
In 2015, Idaho’s personal income was among the lowest in the nation at 49th; Washington’s ranked 13th, while Utah’s was 46th.
Dornfest said the study provides an accurate comparison of overall tax burdens among the states, by population and by income – though it’s true that Idaho’s personal and corporate income tax rates are higher than those of several of its neighbors.
“Rates are misleading at best, because we don’t know what the rate applies to,” he explained. “In sales tax, we know that Washington’s rates are higher than Idaho’s rates, but yet we also know that they don’t tax groceries in Washington, so it’s not an apples-to-apples comparison.”
He said the one thing the study doesn’t show is a “sector analysis,” to point to which sectors of the economy within Idaho pay more or less. That means even though the study shows that Idaho’s property taxes, for example, rank 40th in the nation per-capita and 35th based on income, that doesn’t mean every taxpayer’s bill would rank that way; some may be higher or lower. A sector analysis would pinpoint the incidence of the tax burden on those within different sectors. “The study that I’ve done doesn’t attempt to do that,” Dornfest said. “It’s not within the scope.”
LiCalzi said politicians may point to raw rates instead of the more nuanced picture as justification for the always-popular concept of cutting taxes. “Everybody loves tax cuts,” he said. But, he said, “If you’re going to cut taxes, then you’ve got to cut spending, and where are you going to cut spending?”
GOP gubernatorial hopeful Tommy Ahlquist has called for cutting $100 million in wasteful spending from the state budget.
“Good luck finding it,” LiCalzi said. “We have a very lean budget.”
Labrador is calling for cutting sales, personal income and corporate income tax rates in Idaho to 5 percent. Rival Brad Little, the current lieutenant governor, has proposed phasing in income tax rate cuts in increments each year, whenever state revenues rise enough to cover the costs. He and the others also have proposed other types of tax cuts.
Asked if Idaho can afford tax cuts, Little said, “If we do ’em the way I propose them.”