Tweaking Won’t Help

Majority Leader Mike Moyle (R-Star.) has a good thought but I don’t think it will help without some modification:

Two House Republican leaders on Tuesday floated the idea of taking $45 million from the federal stimulus package to cut Idaho personal and corporate income tax rates.

Mike Moyle, R-Star, House majority leader, and Assistant Majority Leader Scott Bedke, R-Oakley, debuted their trial balloon at a meeting with the state’s largest business group, the Idaho Association of Commerce and Industry.

Bedke told IACI’s legislative committee that he envisions an ad campaign in the Wall Street Journal touting Idaho as a place for businesses to relocate, with lower taxes, a balanced state budget and high quality of life.

“All of us know in our hearts it’s going to be the private sector that gets us out of this,” Bedke said. “And the private sector won’t step up until the government stops beating them down.”

But other legislators were cool to the idea.

The budget committee co-chairs, Rep. Maxine Bell, R-Jerome, and Sen. Dean Cameron, R-Rupert, said it would be wrong to cut taxes at the same time the state is forced to trim pay for state workers and possibly lay off employees. They also questioned how the tax cuts could be sustained with one-time money.

“How can you do that in this climate – give a corporate tax break while you’re trimming education and state employees?” Bell asked.

“That to me is just foolishness,” Cameron said. “We would be laying off people from decent-paying jobs, furloughing people, reducing salaries. We’d love to recruit jobs, but our approach is to save the jobs people currently have.”

Bedke and Moyle said they are motivated by dissatisfaction with President Obama’s plan, which relies on deficit spending to stimulate the economy. Moyle calls the $787 billion “funny money.” The plan has about $508 billion in new spending and $279 billion in tax cuts, all paid for with borrowed money. Idaho’s share of the spending is about $1 billion.

“I’ve been asking, ‘What would Ronnie do?’” Moyle said. “Ronald Reagan. If you want to stimulate the economy, you’ve got to get money into people’s hands.”

Moyle and Bedke acknowledged their nascent proposal isn’t going anywhere without support from Gov. Butch Otter. They also said they don’t yet know whether federal law would allow shifting the stimulus to state tax cuts. They haven’t settled on how $45 million might be apportioned.

It has to be said that sadly Cameron and Bell are of the same mind as the Democrats and that what’s needed here is economic stimulus, not necessarily more government or restoring government program cuts. That won’t necessarily make Idaho’s economy better.

However, where I’ll give Bell some ground is that trying to do this with one-time federal money is going to be hard, even if a big tax cut’s allowed.

If Moyle wants to make our state inviting to business, I think he’s got to go a whole other route. The question of What Would Ronald Reagan do is a good one. But it should be noted that Reagan actually favored a Flat Tax: fundamental tax reform.

Our state has a Business Tax Climate ranked 29th out of 50 by the National Tax Foundation and as the National Tax Foundation notes, all of our neighbors are well ahead of us by a good margin: The ranks of neighboring states were as follows: Washington (12th), Oregon (9th), Nevada (3rd), Utah (11th), Wyoming (1st), and Montana (6th).

To be seen as a less friendly place to do business that deep blue states like Washington or Oregon is shocking. Why is this?:

1) We tax everything. Corporate Income, Personal Income, Sales Tax.

2) We tax in a highly complex, multi-rate structure that is among the most complex backwards ways in the nation.

3) We weight down our tax code with special interest exceptions and deductions.  The amount of our Sales Tax Exemptions are greater than our Sales Tax collections.

The Republican Majority has rested on its laurels and left in a place a tax system that seems like a leftover from the Progressive Era. And the only jobs we can attract to our state are jobs that come because they get away with relatively low pay due to the wage environment.

If you want people to come and do business in Idaho because of being a good climate for business, you have got to fundamentally reform the tax structure and make it into something that makes sense. Simplify it, streamline it, clean it up. Don’t try and haphazardly cut one or two exemptions or deductions as some people have done, write a tax code for the 21st Century that is fundamentally pro-growth and fair to all Idaho citizens. This can be even be done in a revenue neutral way if folks in the legislature will have the courage to take the steps necessary to move our state forward.