College Communications Home
A Bad Time to Cut Taxes
--Judith Brown, as printed in the Post Register
Laying off teachers and cutting health-care benefits for the poor to pay for tax cuts
for the wealthy will hurt Idaho's economy, writes Judith Brown.
The permanent tax cuts passed into law last legislative session have turned out to be
premature. Our state and its people would be better off if these tax cuts were to be
postponed. Here's why:
Last January, Idaho was blessed with what appeared to be a $300 million budget surplus -
the largest ever in the state's history. Approximately half this amount - $114 million -
the Legislature planned to "return to the taxpayers" via tax cuts. Most of the
tax cuts - about $100 million - were permanent. The state's economy seemed so strong that
it would be possible to sustain both the state's spending base in important priority areas
like education and health care, and reduce taxes.
How quickly things have changed. The whole nation - Idaho along with it - slipped into
recession by early summer. The events of Sept. 11 made a bad situation worse.
State revenues, diminished by both the tax cuts and the softening economy, began to come
up short. The governor ordered spending holdbacks of $35 million in August and $17 million
in November. That has already meant a 2.5 percent cut in budgets for school classrooms and
a 3 percent cut in budgets for all other state programs. Now, just this week, the governor
has essentially ordered $20 million of the "rainy day" fund to be spent. And the
state fiscal year is only halfway over.
The arithmetic is not too complicated: $100 million in permanent tax cuts enacted in
March; $72 million in revenue shortfalls by December. The tax cuts have not amounted to
returning a budget surplus to the taxpayers. They are requiring deep cuts into our state's
Just how deep are the cuts to date? Of the $52 million in holdbacks ($35 in August, $17 in
November), $23 million has come out of spending for public education, $10 million out of
the Department of Health and Welfare (which inevitably will translate into cuts for
Medicaid), $7 million out of spending for higher education, and the remainder spread
across the rest of state government.
Who will bear the brunt of paying for these tax-cuts-turned-into-budget -cuts? For
starters, every student in Idaho's public schools. Even if public education is "held
harmless" from future holdbacks, making the holdbacks to date permanent will drag
Idaho's public schools backwards. Class sizes will increase. Even now school districts are
making plans to let teachers go. It is simply not possible to argue credibly that we have
been over-spending on education in this state and that budget cuts will be good for our
In addition to K-12 students, students in Idaho's colleges and universities will shoulder
the burden of these tax cuts. The Board of Education has already granted authority for
fees to rise by almost 25 percent over the next two years. At the present time, a student
graduating from an Idaho college or university is, on average, about $30,000 in debt.
Increasing fees will push a college education out of reach of more and more high school
graduates. Is it fair to deny young people struggling to launch a career access to the
education so necessary in today's economy?
Idaho's many low-income working families will also bear the brunt of these tax cuts.
Medicaid in particular is on the chopping block. Unemployed and low-wage working families
simply cannot afford health insurance on the private market. Nor are they able to pay for
health care out-of-pocket. Furthermore, it is not realistic for many small business
employers to provide health insurance as a benefit to their employees.
Medicaid helps fill some of this gap. Is it fair to cut back on Medicaid during a
recession when more, not fewer, families are unable to afford health care?
Furthermore, economists agree that certain kinds of spending ought to be increased, not
decreased, during a downturn so as to help "jump start" an economic recovery.
The kinds of spending called for depend on the kind of downturn. The present downturn is
characterized more by sluggish consumer spending than by insufficient business investment.
According to Alan Greenspan, chairman of the Federal Reserve Board, stimulus spending in
these circumstances has its greatest effect when it is pumped into the economy in such a
way that it gets spent again and again, generating so-called "multiplier
effects." This means stimulus spending will be most effective when it is put into the
pockets of lower-income families rather than higher-income families. This is because
lower-income families turn right around and spend their incomes on groceries and other
necessities, whereas higher income families save a portion.
How does this advice bear on the choices facing Idaho? Last spring's tax cuts benefited
primarily higher-income families and corporations. The budget cuts that will be required
to pay for the tax cuts will hurt primarily middle-and lower-income Idaho families.
In other words, tax cuts for high-income Idaho families and corporations would have a much
lesser stimulus effect than would, say, preserving the job of an Idaho teacher and
preserving health care through Medicaid for low-income Idahoans.
The choice is clear: For the good of the state, and in the interest of fairness, suspend
the tax cuts. Their time has not yet come.
Brown is an economist and director of the Idaho Center on Budget and Tax Policy in
Moscow. You can write to her at 226 E. First St., Moscow, ID 83843. Her opinion was
printed in the 01/02/02 Post Register.