About 20 years ago, Idaho GOP lawmakers cast aside prudence. They cut income taxes excessively and permanently on the top of an economic bubble.
That sealed their fate when the dot-com recession kicked in. From then on, they — and Gov. Dirk Kempthorne, who initially resisted a permanent tax cut — treaded water, spreading declining tax revenues among ongoing needs, including public schools.
Fast forward to today.
Idaho Gov. Brad Little had no hand in the income tax cuts then-Gov. C.L. “Butch” Otter and GOP lawmakers passed in 2018. But Little has been reacting to the fallout of that decision ever since taking office.
At the time, Idaho opted to conform its state income tax to the changes Congress and President Donald Trump approved just weeks earlier. Those included not only lower rates but a radical change in how taxable income was defined.
So it was anyone’s guess how much it would cost. Lawmakers put the number at about $105 million.
The Idaho Center for Fiscal Policy anticipated it would be closer to $179 million.
Throughout the following year, income tax collections fell about $112.7 million short of expectations until last summer, when Little’s budget shop more or less conceded the higher number in its updated economic forecast.
Little responded by essentially trimming budgets by 1 percent this year and 2 percent next. His projected budget — a 3.75 percent increase — is the leanest since the state was emerging from the Great Recession in 2014.
Little’s office told legislative budget writers Tuesday to expect state revenue growth rate to drop by about a third next year and 17 percent the year after that as the economy cools.
And he wants to set aside more than $100 million in rainy day accounts to help the state weather the next recession.
How could this be happening at a time of record employment and business growth?
In his Jan. 5 column in the Idaho Statesman, former Boise State University President Robert Kustra provided some answers.
For one, he noted Idaho did not have to conform its state income tax with the new federal law. In fact, most states chose not to.
Those that did —including Colorado, Minnesota, New Mexico, North Dakota, South Carolina, Vermont and Idaho — faced the certainty of revenue loss, according to the Tax Foundation.
Then it got worse.
The economists Kustra consulted told him that Idahoans’ personal earnings grew 7.4 percent last year. But the tax cut forfeited the additional tax revenues those earnings would have generated.
“... If there were no changes in the tax code, individual income tax collections would have increased to $2 billion,” Kustra wrote, “but with the changes in the tax code, collections were only $1.6 billion. That is a loss to the general revenue fund estimated at $330 million.”
Critics, including the Center for Fiscal Policy, argued the bulk of that money would go to corporations and wealthy individuals — while larger families with modest incomes actually faced paying more tax.
Imagine, for the moment, what the conversation in Boise might sound like if the state had an extra $330 million in its coffers:
n The $100 million required to remove sales taxes from groceries would be more than affordable. Instead, Little is suggesting a vague $35 million down payment of some kind.
n More than enough to pay for the tuition freeze at the state’s four-year institutions of higher learning. Instead, Little’s budget can scrounge up no more than a general fund increase of 0.39 percent — making program cuts and reductions in force more likely.
n Sufficient funds to address shortfalls in veteran teacher pay, potentially leading to a reversal in the steady rise of supplemental property tax levies now used to augment educator pay in the communities that can afford to pay those extra taxes. Resources also would be available to take a real step forward toward all-day kindergarten programs.
n And there would still be enough money to sock away in a contingency fund in the event of a recession.
Wouldn’t you think that after getting burned so often by these excessively expensive tax cuts, the GOP-controlled Legislature would learn its lesson? Why does the warning go unheeded time after time? — M.T.