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Sales tax fix (in Idaho) not yet an option

The state could lower the sales tax by 1 or 2 percent and still have
more than enough money to balance the budget and fund all its
programs. Senior legislators still unwilling to pull exemptions

Wayne Hoffman
The Idaho Statesman

The catch is lawmakers would have to remove a number of
exemptions that keep Idahoans from having to pay taxes on some
goods and services.

As the state´s budget picture continues to deteriorate, the state´s 5
percent sales tax is becoming the likely target for tinkering by the next
Legislature — although senior legislators are unwilling to sign onto
the concept at this point.

But consider this:

• State budgets are already chopped to the bone, and top state leaders are unwilling to make
additional cuts, especially to education.

• The state faces a $150 million budget deficit in a year if the economy remains flat. A 1
percent across-the-board budget holdback would generate $19.6 million. It would take an 8
percent holdback to bridge the budget gap.

• Gov. Dirk Kempthorne and top legislators have vowed to drain the state´s savings accounts,
so there´s no financial safety net left for the state.

• The Republican supermajority is unwilling to raise taxes to fill the funding hole. Especially
sacrosanct are the income tax cuts passed in 2001.

Eliminating all the sales tax exemptions — there are close to 70 of them — could generate
more than $1 billion. That´s a tough proposition, given all the industries that would be
affected and would likely object.

But the more exemptions that are erased, the more likely the state could trim a percent or two
off the sales tax. For some, that might be preferable to a 1 percent sales tax increase that
would raise an estimated $136 million a year. That would only keep the budget flush and do
nothing else.

But even the prospect of a tax decrease and covering the deficit isn´t moving top leaders to
endorse the concept.

“At this point that is not my priority. You can´t tax yourself out of recession,” Kempthorne
maintained Tuesday. “I´m going to do all I possibly can to not raise taxes.”

And while top Republican leaders quietly discussed the idea in corridors at the party´s
convention in Sun Valley, no one was willing to officially advocate it.

“You´ve got to remember it´s not easy to raise taxes in Idaho, and it shouldn´t be,” House
Speaker Bruce Newcomb said. “The production exemptions are there for a reason and that´s
to attract new business. There are reasons behind those (tax exemptions), and they´re not
easily given up.”

Newcomb said he is still hopeful the economy will start to recover. He and other leaders
realize it isn´t just a bounce the state will need, but a surge, to keep the state in the black.

Moderate Republicans, such as Boise Rep. Steve Smylie, also don´t expect a movement to
change the state´s tax structure.

“We have looked at that over and over again, and I kind of gave up on the cause because
you couldn´t even get a bill printed,” said Smylie, whose father, Robert Smylie, put his political
career on the line in 1965 with passage of the state´s sales tax law. “Every one of those
exemptions has a genesis. There was a deal cut somewhere back in history to keep someone
happy.”

House Minority Leader Wendy Jaquet also isn´t turning to the sales tax — yet. She wants the
GOP supermajority to repeal the income tax cuts approved in 2001 that she and other
Democrats contend are behind the state´s budget problems. But she said the sales tax
exemptions should have an expiration date attached and each should be up for review.

She added, “I don´t think you could have a legislative session that was long enough to pull
that off.”

Idaho Association of Commerce and Industry President Steve Ahrens, who has been watching
the Legislature since the 1970s, said fooling with the tax structure can be dangerous play.

“If you pull one card out of the tax structure, a number of other cards may fall in a way that
upsets the balance in the system,” Ahrens said. “These proposals have been made many
times over the years, always in good faith and always in the end, the Legislature determines
the system now is fairest and best balanced.”

To offer story ideas or comments, contact Wayne Hoffman
[email protected] or 377-6416

http://204.228.236.37/story.asp?ID=13245

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