In reporting yesterday’s story about the competing budget priorities that legislators are weighing this session, I reached out to a lot of business groups. I wanted to identify a small business owner who could walk me through just what a reduced individual income tax rate would mean for his or her business over time; I wanted to hear a strong case for tax cuts, grounded in business practicalities. All inquiries led to Kevin Settles, who owns Bardenay Restaurant and Distillery.
Why seek out someone like Settles? For starters, there’s Governor C.L. “Butch” Otter’s recommendation that the 2013 budget include $45 million in tax cuts. That proposal got a preliminary vote of confidence from the Idaho Legislature last week, in the form of a $35 million tax cut bill that Rep. Mike Moyle (R-Star) said would help the state attract businesses.
The bill would cut the top individual tax rate from 7.8 percent to 7.4
. The corporate tax rate would likewise drop to 7.4 percent, from 7.6. Although Gov. Otter purposefully left it to legislators to determine the specifics of any tax cut plans that might move forward this session, the bill closely aligns with the cut the governor has said he most favors. (In a December interview with StateImpact for example, Gov. Otter said that his preference has “always been the individual income tax — that we take that down to match the corporate level, then take them both down together.”)
The relevant tax rate for small business owners like Kevin Settles is the individual tax rate. It stands to reason, then, that Settles would be happy to see that rate go down. And that’s true. He would be. But he’s also done the math, and he says
a small rate reduction simply wouldn’t mean that much to his business. Consider a .2 percent drop in the individual tax rate, for example. “If I were to pay has much as $100,000 a year in personal income tax,” Settles said, “which I don’t, it would be $200. It’s not going to be enough money for me to really do anything with.”
The .4 percent reduction proposed last week also wouldn’t make a great difference. For Settles, the income tax change would have to be much more substantial. “If it’s part of an overall package to try and get it down maybe 2 percent lower than it is today, maybe it’s worthwhile,” he said. “At two percent, we’re starting to talk about some money where maybe I could do something – invest in a better piece of equipment, or something like that.”
Rep. Ken Roberts (R-Donnelly), who favors tax cuts, takes Settles’ point. He knows a few tenths of a percent won’t make a great difference to any one small business owner. But, he said, it’s a start. “It’s something we can do this year, and it does have an effect. It’s $30 to $40 million in tax dollars that are not going to be paid to the state that will be left in the pockets of Idahoans and Idaho small businesses.”
Rep. Roberts and Kevin Settles say the tax to target isn’t the income tax. It’s the personal property tax. “Number one, it’s a difficult tax to track,” Roberts said, “to keep track of all the staplers and the trash cans and the milling equipment.” Settles agreed. “It’s a deterrent to improve your equipment,” he said. “The check isn’t very much. It’s the paperwork trying to keep track of how many chairs we broke, who got a new calculator.” But the price tag for eliminating the personal property tax is substantial. For this year, Roberts said, “I think we’ll definitely look at some income tax reductions, and we’re fortunate to be able to do that.”