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Hoffman: By not acting, lawmakers raised taxes

Hoffman: By not acting, lawmakers raised taxes

Wayne Hoffman
April 19, 2009
Wayne Hoffman
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April 19, 2009

It's already apparent that Idaho will end this marathon legislative session without raising beer and wine taxes. And if we're really lucky, the Legislature will go home without raising fuel taxes. (That seems likely, baring an 11th-hour horse trade that gives Gov. Butch Otter some kind of nominal tax increase for transportation). But the dirty little secret this legislative session is that taxes did go up. Already. Without a vote of the Legislature. Hardly something to cheer.

The state's businesses are having to pay higher unemployment taxes because more workers are out of work and drawing money from the unemployment insurance trust fund. Such an increase in taxes requires no vote of the Legislature because the change takes place automatically.

Faced with an automatic increase in unemployment taxes in 2003, the Legislature voted to forestall the hike - a move that was heralded by Gov. Dirk Kempthorne and lawmakers. The Legislature's decision six years ago to hold the line on unemployment taxes came with only three dissenting votes.

This year, no legislation made it to the desks of lawmakers for the purpose of stopping the rise in unemployment taxes. (The Legislature did give final approval last week to a bill that will allow the state to accept new federal money for the trust fund, meaning smaller-than-expected tax increases over the next two years. But they're still tax increases on top of tax increases.)

Even small tax increases can make life harder for businesses. The need for low taxes is covered under the Seven Principles of Sound Public Policy for Idaho. Lawrence W. Reed of the Foundation for Economic Education wrote it, and the Idaho Freedom Foundation adapted it for our state. (You can find a complete copy at www.idahofreedom.net.)

In it, Reed and I point out that higher tax rates serve only to drive the industrious and the entrepreneurial to other places or into other endeavors while impoverishing the many who would otherwise benefit from their resourcefulness.

You need only look at J.R. Simplot for an Idaho example of why low tax rates have an impact beyond the nose of the entrepreneur. Simplot became a billionaire over the course of his lifetime. And while some today will argue that his profits "were obscene," just what would have happened had the government denied him that wealth?

Simplot's agribusiness and Micron semiconductor employees were obvious beneficiaries of Simplot's successes. So were the fry cooks at McDonald's who had jobs because of Simplot's French fries.

On the other hand, oppressive tax and regulatory policies used to hurt successful people in order to benefit those who are not successful only end up hurting everyone. If money earned through hard work is taken away, that money can't be spent on expanding a work force. The money can't be spent building a plant or creating the next best innovation. The money can't be used to give raises to employees who deserve the increase.

Still, politicians find it's easy to declare victory over tax hikes when it is their inaction - instead of their affirmative vote - that causes taxes to go up.

In cases like this, defenders of tax increases for well-meaning programs like unemployment insurance like to insist that "it's only a few pennies."

Such an affirmation is intended to hide the real impact that a tax increase can have. Furthermore, it's helpful to understand that unemployment insurance is hardly a panacea; its impact on wages and on savings wages is demonstrable and it eliminates careful consideration of private sector solutions.

Strangely, while the businesses and individuals are told they can easily absorb the taxation that causes the absence of a few pennies, no one seems willing to tell government that it can do without the precious pennies it takes from businesses and individuals.

It can and it should.

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