Tuesday, December 15, 2009

Marvelous Marv's marvy plan

Listening to KBSX today I heard Rep Marv Hagedorn talking about taxes, and his brilliant plan to lower state income tax by 3% and thereby stimulate the economy and increase overall state revenue. As Humungous said in The Road Warrior, “What a puny plan.”

Hagedorn explained it like this. State lowers income tax by 3%, residents have 3% more money and they’ll spend it, maybe going out to dinner or on their families or whatever, and the state will rake in sales tax revenue from all the spending. Really. That’s how he explained it.

I used to think Hagedorn was fairly smart, but he’s disappointed me with this bit of deep thinking. Let’s look at an example. Person making $50,000. 3% of $50k is $1,500. So after Hagedorn’s tax cuts, this person has $1,500 more to spend.

Assuming that none of it is saved, that the entire $1,500 is spent in Idaho, the 6% sales tax on it would be $90. So, state gives up $1,500 in revenue, gets $90 back.

“I do not think your plan will do what you think it does.”

Also, most of that $1,500 is promptly headed out of state. Where’s that family likely to go to dinner? Applebees, maybe? A national chain. Bye bye in state money. Or, maybe Wal-Mart? Some will be spent locally. Marv would say, I guess, that with all the increased business the stores will hire more employees and raise employment. I suppose some of that will happen, but, how many more checkers will it take at Target if sales go up by 3%? Will they hire more checkers, or will the ones they have just be busier? I just don’t think the state will get its full $1,500 back, much less $1,800 or $2,000.

Hagedorn also said “it’s been proven time and time again” that cutting taxes increases state revenue. No, sorry Marv, just the opposite. You’re offering up supply side economics, just like Reagan and George Bush, and both those guys managed to massively increase the federal deficit without growing the economy. I mean, just look around. Look at the recession we’re in. Bush aggressively cut taxes, and the economy certainly didn’t take off.

Also, how is it possible that when the economy is humming and government revenue is quite high, as in 1999 – 2000, the proper thing to do is cut taxes, yet when the economy is in a recession, as now, the proper thing is to cut taxes?


ericn1300 said...

Marvelous Marv has no lock on the idiocy that is Republican tax policy. Wayne Hoffman a long time opponent of taxes, government and civilization in general suggests lowering the corporate tax rate too.

The best short term solution, IMHO, is to repeal the property tax shift that then unelected Gov. Risch shoved through in an “emergency” session of the Idaho State Congress, reduce the sales tax back to 5% and put a temporary 1% sales tax increase like Kempthorne did to get us through this mess.

That single tax shift rewarded rich out of state property owners and property developers who have abandoned large tracts while requiring a shift of K-12 education from property taxes to state funding. Look at how that worked out.

willis4793 said...

What the Reagan and Bush tax cuts did were to create jobs (21 million under Reagan and 5 million under Bush). When Idaho is ranked as the 2nd worst place to do business in the west (CA being the worst), this is a good longterm solution to attract employers.

Not much can be done short term but raise some taxes, cut some bills, but setting Idaho up as a better business climate than other states in the west has to be a good thing. Idaho doesn't have to be concerned with it's impact on inflation as it doesn't print money and has to have a annually balanced budget (unlike the feds).

The more people that are working, the more revenue the state gets through taxes, that's simple math to me! The current high unemployment rate is causing this revenue crisis, not taxes. We were fine, infact has excesses when unemployment in Idaho were low.

I think Marvelous Marv might have a good longterm plan, but it's not going to help short term, that's for sure.

alan said...

I recall that under Reagan the unemployment rate was way high for a while - over 10%, though later it went down.