By Judith L. Brown
The date has finally been announced: Aug. 25. That’s the day Gov. Risch is calling Idaho’s legislators back to the Capitol to rubber stamp a proposal to repeal the 3 mil property tax levy for the maintenance and operations of our public schools, and to raise the sales tax rate permanently from 5 cents to 6 cents on the dollar.
“The net result of my proposal is a $50 million dollar tax cut,” said Risch in announcing the special session. Repealing the M&O levy will reduce property taxes by $260 million. Raising the sales tax will raise $210 million, for a gap or net tax cut of $50 million.
The $50 million gap will be plugged for now by using the state’s current budget surplus, “and by using the surplus we can protect education funding now and in the future,” said Risch.
Sounds great, doesn’t it? A big tax cut that protects our public schools. Does it — maybe — seem too good to be true? When something seems too good to be true, it usually isn’t true. That’s the case here. This huge so-called gift in reality hides some malicious and pernicious things. It’s a Trojan horse.
What is this Trojan horse hiding in its belly?
It’s hiding a huge and unjustified tax cut for business, coupled with a tax increase for families. Fifty percent — half — of the property tax reduction will be received by owners of businesses, farms and other commercial property and half will be received by homeowners and renters. The property tax reduction amounts to $260 million.
Half of $260 million is $130 million. That’s the property tax cut for business. Business will pay only one third of the sales tax increase, or about $70 million. That’s the sales tax increase for business. $130 million minus $70 million is $60 million. That’s the net tax cut for business.
What’s the tax cut for homeowners and renters –for families? Overall, there’s a net tax cut of $50 million. Business’ portion of the tax cut is $60 million. The portion of the tax cut left over for families is — can this be right? — a tax increase of $10 million.
How can that be? This is a tax cut, right? Not exactly. It’s a property tax cut and a sales tax hike. Half the property tax cut will be enjoyed by business, but businesses will pay only one third of the sales tax hike. So families are left holding the bag. Their property taxes will go down some, but their sales taxes will go up by more.
Risch’s proposal is backed by the Idaho Association of Commerce and Industry, Idaho’s big-business lobby, and big business is going to make out like a bandit. Families on the other hand are going to be nickled and dimed into paying more taxes. This is especially true for renters, as well as for homeowners in the many parts of the state where home values are increasing modestly.
What else is the Trojan horse hiding in its belly? It’s also hiding a very serious long-term threat to public school funding. Risch claims his proposal protects school funding. It does not.
It assumes that the $50 million from the current surplus being used to plug the gap between the property tax cut and the sales tax hike will be there each and every year going forward. This is a risky assumption.
It asks us to believe naively that the state will maintain its commitment and its enlarged responsibility to fund public education going forward. The state’s commitment to funding public education has been eroding for a long time. Public education funding as a share of the General Fund, real General Fund revenue spending per pupil, and spending on public education as a share of personal income are all trending downward. Now there’s going to be a tax cut and we’re asked to believe we will stem or reverse this erosion? I don’t think so.
Homeowners, especially in parts of the state where home values are inflating rapidly, do need more property tax reform, but this M&O repeal/sales tax hike is not the way to deliver it. The homeowner’s exemption could be expanded further. A limit on growth in the M&O levy might be the answer.
Instead we’re getting a rigged one-day special session to rubber stamp one proposal only, a tax cut for big business. It’s a Trojan horse masquerading as property tax relief for homeowners. Hidden in its belly is a tax hike for families and slow but agonizing starvation for our public schools.
What a deal.
* Judith L. Brown is an economist and director of the Idaho Center on Budget and Tax Policy. She lives in Moscow with her family and can be reached at jlbrown@turbonet.com.
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