Rep. Denney: Idaho Could Increase Tax Revenue by Decreasing Tax Rates

The Idaho Legislature convenes January 9th.  In advance of the session, we interviewed several legislative leaders and asked them about Idaho’s economy and what the state could be doing to boost growth and job creation.

Idaho Legislature / State of Idaho

Rep. Lawerence Denney (R-Midvale) is the speaker of the Idaho House of Representatives.  He has also served as Assistant Majority Leader and Majority Leader, and he was first elected to the legislature in 1990. Denney says he believes in “as little government control in our business and personal lives as possible.”

Q: Looking ahead to the upcoming session, what are your priorities, and what would you say will be the major topics of discussion?

A: Of course, my priorities are to run the session efficiently and get through it as quickly as possible.  I think the session will be as it has been in the last two or three years.  The top issues are going to, in most cases, come down to money.  Even though the economy has improved some, we’re still down from the high point in revenue collections in 2008.  So there are still some very challenging issues that involve the budget.

I think one of the major issues that we will be discussing in this upcoming session is the insurance exchange idea, and I think that will take a considerable amount of time, whether or not we actually accept the federal money to set up the state-based insurance exchange.

Q: Are you ready to advocate a particular position on that yourself?

A: I am not.  You know, I have mixed feelings about it.  I certainly want Idaho to be in charge of running the insurance exchange, but on the other hand I know that anytime the federal government gives us money, there are strings attached.  So I have very mixed feelings on whether or not to accept that money.

Q: Are you hearing from some on your side of the aisle who say, “We don’t want the Affordable Care Act to go forward, therefore we should not accept this money because that’s one more way to stop it in its tracks”?

A: Well, there are a significant number that don’t want to accept the federal money under any circumstances, but I don’t know whether that’s a majority or not.

Q: This is something that has been discussed in the interim, and will continue to be — you think — one of the major discussions.

A: It has been discussed.  And the Department of Insurance has been working diligently to get everything in place so that they can be prepared to present their case to us and so that we either accept or reject the federal grant to set up an insurance exchange.

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Q: You mentioned the budget. The governor last year proposed a budget based on a fairly austere revenue projection.  Is that what you expect to see this year?

A: I suspect that it will be very much the same as last year.  The good news is I don’t think we’re going to have to make any additional cuts.  The bad news is I don’t think we’re going to be able to restore a lot of budgets to where they were before this recession.  I think our focus is still going to be on many of the same things.  We still have a fairly high unemployment rate, and so we’re going to be trying to look at things for job creation.  And we’ve put on hold some of those things we were talking about before the recession started, such as the infrastructure, the transportation budget and the like.

Q: In other words, there are a lot of things that have been deferred in this interim period.

A: That’s right.  And there’s a pent-up demand out there.  As the budget grows, it certainly is going to suck up any additional revenue that we have.

Q: We hear from Democrats who believe some of the cuts that have been made eventually will start to hurt the state more than funding some of those programs might.  They say we might end up paying more for law enforcement, for example, if people are struggling more with mental health problems.  Are you thinking of those issues of balance?

A: Well, you know, unfortunately, government doesn’t plan ahead more than one budget cycle.  I think it would be prudent if we could, but – you know, we tried to predict out there, but we’re not very good at predicting what’s coming down the road.  I think we have to be prepared for the worst and hope for the best.

Q: For those who might be hoping to see a reinstatement of funding to some of the programs that have been cut in recent years – would you say that’s probably not going to happen in this upcoming session?

A: Well, you know I think everything will be looked at again, and I think we will take care of those urgent needs.  But again, I don’t think there’s going to be enough revenue to bring anybody back to what they would consider whole.

Q: Do you have a sense of what the urgent needs are, based on discussions with members of your party?

A: I think those urgent needs are what we saw last year, and the major issues are education, both K-12 and higher education, as well as Medicaid and that type of funding.  I think those are the urgent areas that we have to look at.

Q: They’re also the greatest expenses in the state.

A: That’s about 80-some percent of the budget, yes.

Q: One of the things we keep hearing is that Idaho is looking at a “new normal.”  Some programs, some agencies will never be funded at the levels they were prior to the recession.  Do you share that view, and do you have specific examples?

A: I don’t have any specific examples, but there’s some consolidation that’s happened that I don’t think will be undone.  There were several commissions that were put together under one umbrella, and I think that will remain.  I think there are efficiencies that have been found, and certainly we won’t go back.  I think there is probably a new normal.

Q: You mentioned job creation, earlier.  What do you think the legislature can do, at this point?

A: I think we have to look at everything we do that encourages business.  Jobs are created by the private sector, not so much by government, but government can deter the private sector from investing in jobs.  So I think we need to look at everything from tax structure to regulation and make sure that we do everything we can to encourage companies to invest.

Q: I know there’s talk of lowering the corporate and individual income tax rates.  Is that part of what you’re referring to?

A: Yes, I think we need to make sure we are at least competitive with surrounding states, and many of them do have a lot lower income tax rate than we do, so – that’s one of the things that we need to be looking at.  I think we need to do what we can to make Idaho attractive to businesses.  And I’d guess 60 to 70 percent of the businesses in Idaho are small businesses, and they pay their tax on an individual return.  I think that means if you’re going to be attractive to small business, you have to address the personal income tax as well as the corporate tax.

Q: You’re saying you have to address both businesses as they function in the state.  Is that accurate?

A: I think that’s accurate.  And our corporate tax is just a couple of tenths lower than the personal income tax, and there may be a move this session to bring those into line and maybe even reduce both.

Q: As an outsider to this process, it’s surprising to hear talk of tax reductions in a session in which we’re hearing there won’t be enough revenue to reinstate some amount of funding to programs and areas that have seen big cuts, or to address the costs of deferred maintenance, as you’ve mentioned.  How do you respond?

A: Well, actually, if you can encourage more business investment, you increase tax revenues by decreasing the rate.  That’s what we’re certainly hoping, is that we can increase employment and increase business activity to the point that we are actually receiving more tax revenue than what it’s costing us for the reduction.

Q: Do you think the state could see the results quickly enough, in this environment?

A: Well, I think so.  With income tax, there’s always a lag.  Probably about a year lag, so it is difficult to do.  At the same time, if you can create that business activity, I think it’s worthwhile.

Q: How about tax incentives?

A: You know, the great thing about tax incentives is that if nobody takes advantage of those incentives, it doesn’t cost us anything.  If they do take advantage of them, we actually gain revenue.  The problem I have with tax incentives is that sometimes they create winners and losers.  I don’t want to put out incentives that make it harder for the businesses we have in Idaho in order to recruit businesses from elsewhere.

Q: What else should we be thinking about, in terms of job creation and the upcoming session?

A: We are going to have rules coming from the Department of Lands on the new natural gas discoveries that we’ve had in Idaho.  I think that’s an exciting possibility for us, and another revenue source, if it pans out.  I know there are some very productive wells that have been drilled so far.  There’s a potential there for increased revenue without any additional tax burden on the citizens here.  This is something that’s new for all of us, because we’ve never had oil or gas in Idaho.

This interview has been edited and shortened.