Surplus gives Idaho Legislature room for tax cuts — after bigger problems are fixed

Lawmakers seem giddy, with a $1.6 billion budget surplus that will allow them a kind of budgetary freedom that few state lawmakers have ever enjoyed.

With elections just around the corner, it isn’t surprising that the Republican-dominated Legislature’s top priority is a tax cut.

According to The Associated Press, lawmakers are contemplating a $400 million tax cut that would involve lowering the top marginal income tax rate from 6.5% to 6%, a move that would especially benefit top income earners.

With a surplus that size, there is certainly room for some amount of tax cuts. But it should not be lawmakers’ first priority. Other matters are more pressing.

Republican legislators are quick to say they want to “give money back to the taxpayers.” They should be giving money back to the taxpayers — in the form of government services, such as a properly funded public education system.

And continually cutting taxes, especially when there’s uncertainty about how much of the budget surplus is the result of one-time federal coronavirus aid, is painting the state into a corner.

The key long-term driver of Idaho’s repeated budget surpluses seems clear: There are a whole lot more Idahoans paying taxes each year. Idaho’s population has grown by more than one-fifth in the past decade. Combine that with a period of good economic growth, and tax revenue has pretty consistently beaten expectations.

Idaho has seen year after year of tax cuts during this population boom. On a surface level, it seems to be working: Budget surpluses continue to grow. But cutting taxes over and over during a population boom could be building in a structural time bomb that will go off sooner or later.

Population growth isn’t likely to stay at this rate forever. Idaho isn’t building homes at a pace that keeps up with growth, as can easily be seen in the state’s skyrocketing home prices. Eventually, housing prices will reach a point where Idaho becomes a less attractive place to move, and population growth will wane.

And when population growth fuels tax revenue growth, it’s accompanied by an increase in demand for government services. If you add 20% to the population to the state in a year, you’d expect to have 20% more tax revenue, but also could have 20% more kids in school, 20% more cars on the road, 20% more people in prison, and so on.

So in a population-growth-fueled tax revenue boom, you need broad spending increases just to keep pace. If you don’t, then you’re just slowly chipping away at everything the government does. You’re providing less maintenance on roads that see more traffic. You’re cramming more students into overcrowded classrooms instead of building new ones.

And core state government functions are already grossly underfunded.

The Legislature has failed to take reasonable steps to reduce Idaho’s excessive incarceration rate, and unless it does, Idaho will continue sending model inmates out of state, where their families can’t see them, or it will have to spend hundreds of millions on a new prison.

Education funding has never fully recovered from then-Gov. Jim Risch’s decision to move it from property taxes to sales and income taxes. Idaho remains in last place in per-pupil K-12 spending. Pay for teachers and paraprofessionals is too low to retain them. Students in many districts still don’t have access to full-day kindergarten, much less pre-K education.

A state with a surplus that’s more than a third the size of its general fund has no excuse for allowing situations like these to continue. The Legislature should ensure key issues are addressed before it considers any tax cuts.