A warning about cutting taxes in states like Idaho that are flush with cash | Opinion
During his State of the State address this year, Idaho Gov. Brad Little quoted Lt. Gov. Scott Bedke’s piece of ranch family wisdom.
“It won’t be the bad years that put you out of business; it’s what you did in the good years that sets you up for failure or success.”
Flush with cash, too many states across the country are making decisions, though, that could set them up for failure when times get bad again.
“It’s already clear that policymakers in many states are pushing the same kind of big, wasteful tax cuts that we saw so many states previously enact over the past two years,” Wes Tharpe, deputy director of state policy research for the Center on Budget and Policy Priorities, said on a press call Thursday morning.
“States face a critical choice: whether to squander current revenues and undercut future ones on tax cuts designed to mostly benefit the wealthy and corporations, or whether to instead learn from the mistakes of the past by reinforcing and strengthening the revenue systems to protect people and communities from immediate harm and to help build broad-based prosperity and equity down the road.”
Fortunately, after three years of tax cuts and rebates that have disproportionately benefited the wealthy and corporations in Idaho, Little wisely left out any further tax cuts in his proposed budget this year.
But that might not stop legislators from the temptation.
“What we’re seeing, in some ways, is really a continuation of last year’s trend, with many lawmakers latching on to these short-sighted tax-cutting ideas,” Aidan Davis, state policy director for the Institute on Taxation and Economic Policy, said on the same call with reporters. “And I think part of what’s going on here is that lawmakers who really prioritize tax cutting are starting to see the writing on the wall.”
They see this as their last chance to slip in a tax cut before the economy starts to turn south, she said.
That would be a mistake.
Instead of cutting taxes, states should be shoring up their revenues to weather a potential economic storm and provide public services to those who need it, especially those who would be hit hardest by a downturn.
The Idaho Legislature, behind Little’s leadership, so far has seemed to strike a fine balance of cutting taxes while still adding to rainy days funds, paying down debt and investing in public education that will pay dividends into the future.
But bolstered by skyrocketing tax revenues, no doubt aided by billions of dollars in federal coronavirus relief money, Idaho may have been shortsighted the past two years in making too many cuts to ongoing and future revenues.
While Idaho has made historic investments in public education and infrastructure, the Legislature also has approved $2.7 billion in tax cuts and rebates over the past three years, including reducing personal income and corporate tax rates, which means less state revenue every year moving forward. Meanwhile, Idaho’s sky-high population growth ensures that there will be far more future demand for government services.
Fortunately, Idaho legislators in September were able to approve additional investments of $330 million in K-12 public education and $80 million in workforce education scholarships.
These kinds of investments will help Idahoans move out of poverty, out of minimum wage jobs, off food stamps, off welfare, and keep them in housing and get them above that 138% of the federal poverty level to get them off Medicaid, all stated goals of conservative legislators.
While Idaho cut $2.7 billion in taxes, though, think about what could have been done with that revenue to make improvements — long-lasting, life-changing improvements — in Idahoans’ lives.
Child care tax credits, increasing higher education funding and scholarships, expanding career-technical education in high school, increasing the number of teachers and counselors, cutting taxes for low-income families and funding public transportation are all ideas that would help those who need it most and, in the long run, benefit Idaho.
“What I’m most concerned about are the very large, very regressive tax cuts being floated that mainly benefit the rich and do next to nothing for low- and middle-income families,” Davis said.
As a tax policy, a flat income tax is a bad one, yet many states, including Idaho, are rushing to pass it. Idaho passed a flat income tax last year.
“We know for a fact that when states don’t have income taxes or when they have flat income taxes, their overall tax systems end up being a lot more regressive, and more people and people in vulnerable economic situations often end up paying more through higher sales, excise and property taxes,” Davis said. “Too many of the tax cuts we’ve seen proposed and enacted also include next to zero acknowledgment by lawmakers of what we’re going to be giving up by choosing to collect fewer tax dollars.”
But what about fast-growing states like Idaho, where we’ve been able to cut personal income and corporate tax rates while at the same time still increasing tax revenues because of our growth?
“What I would offer to states in that situation is that the move to make deep permanent cuts in state revenue systems really runs the risk of reversing those positive trends that you’re seeing,” Tharpe said.
He pointed out that things like good schools, libraries, parks, good roads and health care attract people to move to a state as much as anything. If those services aren’t maintained as more new residents strain those services, they’re not going to want to come to your state anymore.
“If legislators are taking the short-sighted approach, by seeing those revenues grow temporarily, but then undercutting them longer term, they really run the risk of making their states less attractive, sending those states in reverse,” Tharpe said. “Because the real reasons that both households and companies move across state lines, the evidence is clear that it’s not because of differences in marginal tax rates; it’s because of access to amenities and a broader package of (what) makes a state attractive.”
So looking ahead to what we do in the good years affecting what happens in the bad years, Idaho would be wise to stay away from further tax cuts and make sure the state government has the revenues to maintain basic public services, especially for those who need it most and especially if we run into a recession.
