Copyright: Marty Nelson, Shutterstock
Copyright: Marty Nelson, Shutterstock
Tax Reform

State of the State: Idaho

Education spending and reducing the base tax rate for unemployment insurance were the major fiscal themes in Idaho Governor Butch Otter’s State of the State address. In regards to proposal to reduce the base tax rate for unemployment insurance, Governor Otter deserves credit for his efforts to provide job creators with tax relief.  However, when it comes to education spending, research shows that increased spending does not necessarily lead to better results for students. Overall, Governor Otter’s proposed budget increases state spending by an alarming 9 percent, according to the Idaho Freedom Foundation. “He is growing spending twice as fast as the economy is growing,” explained Fred Birnbaum, Vice President of the Idaho Freedom Foundation.

Governor Otter proposed increasing K-12 education funding by an estimated $104 million, or by 6.4 percent.  Additionally, under his proposal, colleges and universities would increase spending by $6 million, and community colleges would increase funding by an estimated $2.1 million. According to the ALEC Report Card on American Education, a big distinction exists between student performance and spending. In fact, data shows that more spending does not necessarily lead to better outcomes for students. For example, from 2013 to 2015, Idaho increased per-pupil spending from $6,791 to $8,928. However, the average National Assessment of Educational Progress (NAEP) score for fourth and eighth grade reading and math declined over that time frame. Idaho students deserve programs that will deliver real results and prepare them for the challenges of a competitive workforce. More funding increases are not the best solution to the problem.

On a more positive note, Governor Otter discussed reducing the base tax rate for unemployment insurance, which can help Idaho’s economy grow. According to the Tax Foundation, Idaho’s heavy unemployment tax burden currently ranks fifth worst nationally. Governor Otter proposes cutting the base tax rate for unemployment insurance by 6.3 percent this year. Under current law, an unemployment tax of 1.395 percent must be paid on the first $37,800 of income in 2017. This proposal would reduce this to just 1.307 percent. He estimates his proposal will provide $46 million in tax relief for employers in 2017 alone and $115 million over three years. Reducing the base tax rate for unemployment insurance will provide much needed relief for Idaho’s job creators.

Regrettably, Governor Otter’s proposed reforms in his State of the State address did not address a key need for Idahoans—groundbreaking tax reform. Idaho’s economic outlook in Rich States, Poor States dropped from 6 in 2015 to 15 in 2016. Meanwhile, economic outlook in neighboring states such as Utah, Wyoming and Nevada rank 1, 4 and 14 respectively. In fact, Idaho’s neighbor to the south, Utah, has ranked number 1 in economic outlook in every edition of Rich States, Poor States. Reducing the base tax rate for unemployment insurance is a step in the right direction, but significant tax relief, such as reducing the state’s burdensome personal and corporate income taxes, can fuel more significant economic growth. Overall, it is disappointing the governor’s State of the State address did not propose groundbreaking pro-growth tax reform.

 


In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A …

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