State Rep. Marv Hagedorn says Idaho Republicans are discussing a set of income tax cuts of up to 37 percent, that would create a flatter tax and cost the state budget $4 million a year.

Hagedorn, R-Meridian, said the cuts to state personal and corporate income taxes wouldn’t start until until at least 2012 and would gradually decline over a decade. In the first year of cuts, the highest personal income tax rate 7.8 percent would drop to the current corporate rate of 7.6 percent. Every year after, both rates would go down roughly 0.3 percent until they hit 4.9 percent. Hagedorn said the tax rate on the lowest brackets, which affect only the first few thousand dollars of personal income, would drop to zero.

The tax cut proposal wouldn’t have a direct impact on state budget negotiations set to start next month, but Hagedorn said the plan would help out the state economy in the long run. “We have a revenue shortfall because people are not employed or making as much money as they used to make,” Hagedorn said. “The root cause of our problem today is unemployment. So we really have to set our state up [so] can be the state of choice for employers. We want to help the employers in Idaho.”

Hagedorn quoted numbers showing the tax burden on Idahoans and Idaho businesses is higher than the national average, and the highest in the Northwest. According to the Tax Foundation, a nationwide think tank, Idahoans paid 10.1 percent of their income to state and local taxes in 2008, the 13th highest burden in the nation. The following table shows a comparison of neighboring states:

State                                                     State/local tax burden                                                   Rank Nationally

Washington                                        8.9%                                                                                      35

Oregon                                                 9.4                                                                                          26

Nevada                                                6.6                                                                                          49

Utah                                                      9.6                                                                                          22

Wyoming                                             7.o                                                                                          48

Montana                                             8.6                                                                                          40

(source: The Tax Foundation)

The Idaho legislature’s latest Fiscal Facts handbook shows in 2006, the last year for which the tax burden was calculated, Idaho ranked higher than the national average in personal income taxes as well as motor vehicle taxes. In corporate income, sales and property taxes, Idaho was below the national average. Overall, the legislature ranked Idaho’s tax burden in 2006 as below average, #34 in the country. The Fiscal Facts also reports that Idaho residents’ combined federal, state, and local tax burden in 2007 was 42nd in the nation and below other western states.

Hagedorn estimated the cuts would cost the state $40 million over 10 years, but said those were ‘back of the napkin’ calculations. He and other House Republicans working on the plan are waiting on an analysis from the state tax commission, which should be finished by the end of the week.

Hagedorn said the details of the cuts and its impact on the state budget are still being ironed out. “This is a work in progress,” he said. “We’re a little premature in getting everybody excited about this, but it’s out, so now we deal with it.” He said the final wording of the tax cuts won’t be ready until the middle of January.

Two other Idaho House Republicans—Majority Leader Mike Moyle of Star, Raul Labrador of Eagle—are working with Hagedorn on the tax cut plan, but Hagedorn said other House and Senate Republicans are pursuing similar efforts. “We’ve been building quite a coalition on this thing and I think we’re picking up some steam,” he said.