|Brian Whitlock, Governor Kempthorne’s Chief of Staff, informed the
committee of the actions that the House of Representatives have taken to
date on tax issues.
A bill that would move to quarterly tax payments has been sent to the
House floor without recommendation. This bill would generate $80 million
in 2004 and $80 million in 2005. It would begin January 1, 2004. The
shift to quarterly payments means that businesses may have to borrow to
pay the estimated taxes.
When questioned as to the Governor’s opinion on quarterly payments, Mr.
Whitlock indicated that the Governor is not looking for a one time fix, and
doesn’t want the state to be in the same revenue shortfall boat next year.
A second revenue bill that was in the House Revenue and Taxation
Committee, is legislation that would temporarily increase the sales tax ½
cent starting in May. It would have a sunset clause of June 30, 2004.
This would give the 2003 budget two months of revenue, and 2004
budget 12 months. Estimated revenue projected is $80 million. This
legislation did not pass out of the Revenue and Taxation Committee.
A similar bill that would raise the sales tax ½ cent would start July 1, 2004
and have a sunset of June 30, 2004. This would raise eleven months
worth of revenue. It would not benefit FY2003. This bill was sent directly
to the House floor without recommendation.
Mr. Whitlock indicated that the Governor would feel that this is a one time
A third bill in the House would increase the tax on cigarettes to $1.00.
This would generate $53 million in revenue. A 20% elasticity rate is built
in to account for people who will buy cigarettes out of state, on an Indian
reservation, or quit smoking. This bill does include other tobacco related
The increase in cigarette taxes to $1.00 would be split with the original
$.28 cents distributed at the current levels, and the additional $.72 cents
would be distributed to the general fund. This bill has been sent directly
to the House floor without recommendation from the Revenue and
House bill 402 would increase the tax on beer from $4.65 a barrel (31
gallons) to $7.44 a barrel. It would increase the tax on wine from $.45
cents a gallon to $.75 cents. The revenue generated would be $3.7
million. This legislation is in the House Revenue and Taxation
Mr. Whitlock informed the committee that both of the Governor’s bills
have been held in the House Revenue and Taxation Committee and
probably will not be seen again this year. The Governor crafted these two
bills to add stability to services and programs in the state. He also wants
to maintain good standing in bond ratings for the state. He looked at the
sales tax as a way to establish stability. The last time the sales tax
increased was in 1986. The sales tax went from 3% to 4% in 1983. From
4% to 4.5% in June of 1983. It dropped back to 4% in July 1984. In 1986
the sales tax increased to 5%, and in 1987 the 5% was made permanent.
Fiscal year 2003 has a $168 million gap to fill. The Governor wanted to
use some one time money from funds, plus a sales tax increase to 6.5%
starting in May to fill the gap. This would have generated enough revenue
to add $18 million back to stabilize the millennium, deferred maintenance,
and rainy day funds.
Michael Ferguson with the Department of Financial Management,
reported that the preliminary March estimate for tax collections is $6.7
million ahead of projection. February collections were down $22.4 million
from projected. If March holds steady, collections will be down $15.7
million from projected.
Senator Sweet asked Mr. Ferguson about a report published by the
Cato Institute that states that increasing taxes in hard economic times will
serve to keep a depression economy lingering. It also states that tax
increases just increase government spending. Mr. Ferguson replied that
the Federal government can deficit spend and Idaho cannot. Raising
taxes or cutting programs will both have an impact on the economy and
society. If taxes are raised it hurts lower income citizens. If programs are
cut, it hurts vulnerable citizens.
Idaho has programs that have been cut, but the state needs an infusion of
cash to maintain needed programs. Idaho is not like some private
businesses that can give themselves an infusion of cash or cut whole
areas of operation. Idaho will have growth and vital programs that must
Brian Whitlock discussed the Governor’s $.34 cent tax increase on
cigarettes. Many other states are looking at increasing cigarette taxes.
The national average is $.66 cents. Washington has a tax of $1.42,
Oregon $1.28, Utah $.69 1/2 cents, Wyoming $.60 cents, Montana $.18
cents, and Nevada $.35 cents. It has been nine years since the tax rate
on cigarettes has increased. The distribution rate would stay the same.
The current $.28 cent tax would be distributed as usual and the additional
collections would go to the general fund.
Mr. Whitlock indicated that the Governor does not favor an increase to