Lawmakers want details on tax reduction plan, but many agree rates must drop
In Gov. Butch Otter’s State of the State speech Monday, he outlined a plan to cut Idaho’s personal and business income tax rates during a 10-year period, but the idea is receiving mixed reviews from members of the Idaho House.
Though some legislators believe tax rates must drop, while others feel a move in that direction would do irreparable damage to the state, there is one common thread that runs through all their rhetoric: they all want to see the bill, which is being crafted by Rep. Marv Hagedorn, R- Meridian.
House Majority Leader Mike Moyle, R-Star, co-sponsored the 2010 version legislation, known as House Bill 707, but isn’t so sure he wants to put his name on the bill again. “I’m being told he is changing his plan, so until I see the legislation, I don’t know where I stand on it,” said Moyle. “Let’s wait to see what Hagedorn has.”
If Moyle doesn’t support Hagedorn’s proposal, he will craft one of his own. “If he is doing some stuff I don’t like, I will bring my plan back,” said Moyle, who is dedicated to getting tax-cut legislation through the House in one form or another. “To be competitive with our surrounding states, our corporate rate has to be 5 percent or less.”
Idaho’s personal income tax rate is 7.6 percent, while businesses pay 7.8 percent. If Hagedorn is successful with the legislation, personal and businesses would both pay a flat 4.9 percent rate.
Like Moyle, House Revenue and Taxation Committee chairman Dennis Lake, R-Blackfoot, wants to see the legislation prior to forming an opinion. Lake is concerned that the plan would paint Idaho into a fiscal corner. “My biggest concern is that we are creating a box down the road that, maybe when we get down the road we won’t want to live in that box,” said Lake. “I get very nervous about doing legislation that doesn’t take effect for a couple years.”
Still, Lake says tax rates for business are above where they should be. “There’s no question about it, our corporate tax rates are high,” said Lake. “But it’s very difficult to reduce just the corporate tax rates.”
Under Hagedorn’s plan, tax-reduction legislation does give small businesses – limited-liability companies and s-corporations, among others – a break because they typically file business earnings under personal income taxes.
One member of the House Revenue and Taxation Committee, House Minority Leader John Rusche, D-Lewiston, said that talking tax cuts when agency budgets are still being reduced may not be the right course of action. "I think we have got to be adults about this," said Rusche. "I just don't understand how that's a reasonable discussion." Still, Rusche left the door open to support the legislation. "It's hard to draw a line in the sand until you see a bill."
Rusche is correct, says Hagedorn, in his assumption that the bill would mean fewer tax dollars for the state – at least in the short term. Hagedorn told IdahoReporter.com that his proposal will mean an annual decrease of 0.3 percent of state income tax revenue and that could be a big chunk of change. In fiscal year 2010, for example, the state collected $1.3 billion in personal income taxes and $136 million in corporate taxes. If the tax-reduction bill had been in place then, that would have meant a loss of approximately $45 million.
But Hagedorn says that his bill will lure more businesses to the state, thereby broadening the overall tax base and increasing total revenue. The plan, he notes, also has triggers that can stop the slide in tax rates if Idaho’s economy slumps in any of the 10 years. Under a provision in the bill, the governor is also able to stop the rate decline if needed.
Another Democratic member of the committee offered softer language on the proposal. Rep. Grant Burgoyne, D-Boise, said Monday that he, like Rusche, will listen to the plan but is unlikely to support it because it deals only with one area of tax code.
“It makes more sense to me to look at an overall overhaul of the tax code to make it business-friendly for the new economy we are going to have coming out of this recession,” said Burgoyne. “To pick off one tax and one issue, rather than look at the whole issues, makes me a little skeptical about if we’re going through the right process or not. “
Deductions for citizens and businesses are of concern to Burgoyne if the plan gains traction. He offered no concrete plan on how they should be handled, but said that lawmakers may need to examine if deductions will make tax rates too low under Hagedorn’s proposal.
The newest member to the tax committee, Rep. Cliff Bayer, R-Boise, says that the plan may be good, but worries about what might be coupled with the tax reduction. “It depends on what else is in the package,” said Bayer. “Previously there have been proposals that have had facets of increasing sin taxes in the same package. That causes some problems. So it really depends on how it’s done.”