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Hoffman: Use stimulus money to cut taxes

Hoffman: Use stimulus money to cut taxes

Wayne Hoffman
March 22, 2009
Wayne Hoffman
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March 22, 2009

Here's what I don't get: If $45 million can be used to stimulate the economy, why is the government the only organization capable of facilitating that stimulation?

Let me come back to that question. First, good news from the House State Affairs Committee, which last week approved what amounts to "a memo to Congress" reminding our federal lawmakers that Idaho is a sovereign state. The proposal - called a joint memorial - has no force of law, but it should make Idahoans feel good to know that their state elected leaders are getting a bit tired of being kicked around by Congress and the White House.

But Idaho and other states are now in this peculiar position of defending sovereignty in one hand and using the other to accept the federal government's "stimulus" money - and all the mandates and strings that go with it. It's one thing to protest the loss of the Tenth Amendment guarantee that gives the states and the people those powers not expressly delegated to the federal government. It's another thing to do more than write a letter or wag a finger.

In one area there is flexibility for Idaho to use the stimulus money as we see fit. And Idaho has a chance to show that it's more than Little Brother to the Fed's Big Brother. That's where the $45 million comes in. Out of the $1.24 billion coming to Idaho from the federal government, this 3.6 percent is our discretionary portion. Gov. Butch Otter has formulated a plan to spend that money - pushing the bulk of it to transportation and the remainder to drinking and wastewater projects. But Otter dismissed the best idea of the bunch: cutting taxes.

"I didn't see it putting jobs on the street," Otter told reporters at his March 11 press conference. "I didn't see it putting a lot of people to work. We talked it over with the business community, and the business community said it was interesting, but not at this time."

Now back to my question: If $45 million can be used to stimulate the economy, why is the government the only organization capable of facilitating that stimulation? The federal government is taking just about $1 trillion and dictating how it will be spent, because there's this erroneous belief that no one else (read: the taxpayer) is smart enough to know how to spend it.

Using the $45 million in its entirety, you could cut the state's corporate tax by about 25 percent. You could make a sizable dent in the state insurance premium tax, which just gets passed on to health insurance consumers anyway. You could even do a nice one-two punch by eliminating the kilowatt-hour tax (also passed along to consumers) and still have plenty of money to raise the grocery tax credit.

The leading argument against a tax cut is it would be a repeat of mistakes made by the Legislature in 2001, when lawmakers cut income taxes permanently and had to resort to raising taxes two years later after the economy tanked. That's a bit of a revisionist version of what really happened. The actual story is more complicated. The state began accruing budget surpluses about 10 years ago, and by the start of the 2000 legislative session, then-Gov. Dirk Kempthorne proposed banking what was at that time a sizeable surplus of more than $50 million. But the Legislature wanted to cut taxes instead, and did so temporarily as part of a compromise with the governor to wait and see how the economy was doing.

In 2001, with the state's budget surplus still growing, Kempthorne proposed $140 million in tax cuts, with $100 million lasting just a year and the rest ongoing. The Legislature instead passed about $100 million in permanent tax breaks and $14 million in one-time relief. Critics contend that the Legislature's ill-advised tax cuts resulted in an increase in the sales tax in 2003. That's not quite the case. In 2001, after the Legislature adjourned, the economy began to slip with the dot-com era ending. Exacerbating the economic hardships were the Sept. 11, 2001, terrorist attacks, creating an economic upheaval that few could have anticipated.

Clearly, any tax cut enacted this year would have to be temporary, unless someone is willing to cut another $45 million from government to make the tax cuts permanent (a proposition I would favor but know won't happen).

Somewhere today in Idaho, there's an entrepreneur who relishes the idea of being able to hire another employee, give out some bigger raises, or expand operations. If only that 7.6 percent corporate tax were a bit lower. It may not look as dramatic as a backhoe making way for a new wastewater treatment plant, but it's a worthy sight nonetheless. And I'd bet you, when all is said and done, our Idaho tax cuts and Idahoans spending their money the way they see fit would do more to grow the economy and create jobs than the government-picked projects that are slated for our state.

Wayne Hoffman is the executive director of the Idaho Freedom Foundation, a nonprofit, non-partisan think tank. E-mail him at [email protected].

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