Richard Slaughter is an international economic consultant. He was formerly chief economist for the state of Idaho.
By RICHARD SLAUGHTER
Lt. Gov. Jim Risch, the Republican nominee for U.S. Senate, has made a major campaign issue of the property tax reduction he initiated in 2006. Claiming that he cut Idaho taxes by $260 million, he promises that tax reductions will be his first priority in the Senate.
There are questions of just how much of a tax cut the lieutenant governor accomplished. In his words, he kept property taxes from "soar[ing] an additional 20 percent, while the sales tax rose just a penny." Of course, that penny is 20 percent of the prior tax, so now everyone pays 20 percent more in sales taxes than before. You remember the old saw, "figures don't lie, but ... "
There are two major difficulties with Mr. Risch's claims: First, it was not a tax cut, but a major tax shift, from large property owners to people whose largest expense is groceries. Second, the spending reduction was miniscule, because the 20 percent sales tax increase took an additional $200 million out of taxpayers' pockets.
Any economist knows that the best tax features a broad base and a low rate. In 1965 the Idaho sales tax was 3 percent. A few basic exemptions were in place to prevent double taxation. In the 1970s, new exemptions trickled through the Legislature. Today, with the rate at 6 percent, the trickle has become a flood; the pressure for exemptions grows with each increase in the tax rate. And the more exemptions, the less revenue per penny. It is almost impossible for a legislator to oppose a tax exemption for a favored constituency, and virtually impossible to remove one once enacted. All this has happened on Jim Risch's watch, as Senate majority leader, lieutenant governor and governor.
The result of shifting from property taxes to sales tax is that wage earners now pay twice the tax on groceries and other necessities than before, while business services and organizations favored by Mr. Risch are totally exempt. The higher sales tax now takes more than $700 million more every year out of Idaho taxpayers' pockets than would the 3 percent tax. This is most definitely not a tax cut. If there is no change in course, the sales tax may reach 10 to 12 percent in a few more years.
The irony of all this is if Mr. Risch's friends would get off of their simplistic "cut taxes and gut government" kick and become fiscally responsible, removing the exemptions would allow cutting the rate back to 3 percent. That is because, as the exemptions have multiplied and the economy has shifted from goods to services, over 50 percent of sales are now exempt. A 3 percent rate would improve the economy, reduce Internet tax avoidance, help taxpayers who buy more groceries than services, help businesses in towns bordering Washington and Oregon, and still fund government at its current level while leaving property tax reductions in place.
But Jim Risch sees only property taxes and propertied elites. Should he be successful, you can look forward to zero tax on capital gains, replaced by a 25 percent payroll tax and more borrowing from China. And good luck, if you think "conservatives" will cut spending. It's your choice.
