Balancing Act
by Brent Hill
Well, the numbers are in and it isn’t a pretty picture. Idaho State revenues for the fiscal year ended June 30, 2002, were over $250 million less than the prior year. The Legislature anticipated a significant portion of the shortfall and adopted legislation that would allow the state to tap one-time sources to balance the budget. The fundamental challenge facing the Legislature this coming session will be how to balance a budget without these one-time monies if the economy does not significantly improve. Some of the alternatives being considered include the following:
Arguments FOR: Income taxes are considered one of the most progressive types of taxes available, meaning they are assessed against those who can most afford to pay. Another argument presented by some is that Idaho taxpayers were rewarded with a tax reduction when the economy was doing well, so they should be willing to accept a tax increase during economic hard times.
Arguments AGAINST: An increase in income taxes will delay the economic recovery. Business will be reluctant to locate in Idaho where tax rates are already above the national average. Citizens are struggling with the economic slowdown and assessing more taxes will only add to their financial hardships.
Arguments FOR: An increase in sales taxes would result in an immediate boost in state revenues, while income taxes take more time to affect cash receipts. Sales taxes are also paid by tourists and other out-of-staters who do business in Idaho. Sales taxes are easier to administer, simpler to understand, and less subject to avoidance by tax evaders.
Arguments AGAINST: Sales tax is a regressive tax that will place too heavy a tax burden on the poor. A higher sales tax rate could put Idaho retailers at a competitive disadvantage with businesses in other states.
Arguments FOR: Our economy is becoming more and more service related, yet services are exempt from sales taxes. Taxing services such as attorney fees, real estate commissions, media advertising, insurance, automotive repairs, bank fees, contract labor, etc., would generate a large amount of tax revenues.
Arguments AGAINST: A tax on services would require more complex tax laws to define how and what services would be taxed. Because most states do not tax services, Idaho service providers would be at a huge economic disadvantage.
Arguments FOR: When your income goes down, you have to cut your expenses. People must live within their means, no matter how meager, and governments should learn to do the same. Tax increases place hardships on our citizens who cannot afford greater burdens.
Arguments AGAINST: Public education, state agencies, and health and welfare services have already been trimmed to the bone. To further reduce funding for these vital services will result in both short- and long-term damage to the success of this state and its citizens. Quality education is vital to the continued economic development of our communities and the future of our children.
While the available options seem apparent, there is no clear best solution. Make sure your local legislators know your opinion so they can effectively represent you.