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Close the gap before raising taxes

Robb Hicken

Robb Hicken

When Idaho’s legislators come back in session, they’ll have financial obligations galore to ponder.

Already the state Board of Education begs for increases, the Transportation Department bemoans upkeep shortfalls, and state employees decry further cutbacks in service.

Gov. C.L. “Butch” Otter and his administration were praised recently for doing an outstanding job in keeping the state’s financial books in balance. But they, too, are faced with some almost impossible deficits.

A $300 million budget shortfall is projected. The rainy day funds aren’t there to cover or make up the difference.

Tax increases have been proposed on tobacco products, alcoholic beverages and diesel fuel to cover the shortfalls.

Before they go there, lawmakers should know one of the best options was laid out last summer: Close the existing tax gap before you raise taxes.

In the past year, Idaho’s State Tax Commission has used temporary auditors and collectors to bring in taxes it would not have collected otherwise.

Commissioners have asked for an additional $2.7 million in funding to permanently take on workers hired as temporary.

The Legislature’s Office of Performance Evaluation hired the temporary workers in response to a 1996 study. It found a wide gap between taxes owed and taxes collected.

The Tax Commission updated the tax gap study last year with current information. Armed with the new numbers, the Commission received approval from Gov. Otter to use $1.5 million in contingent appropriations made by the Legislature to enhance collection and audit efforts.

The project’s first goal was to collect $10 million in uncollected revenue. What was collected: $20.5 million, said Randy Tilley, administrator of the agency’s Audit and Collections Division.

The plan for this fiscal year was to restore a number of unfilled vacant positions and hire additional temporary people.

Earlier this month, Tilley said temporary workers had brought in more than $5.5 million at a cost of just $157,092 over a three-month period that began July 1. The collection goal for the temporary workers was $1.266 million.

Lawmakers will decide whether to dedicate funding to make all of this year’s temporary positions permanent and hire more temporary workers. If they do, “we won’t have to start all over again and rehire these folks as new hires next year,” Tilly said. The commission will request an additional $2.3 million to hire another 48 temporary workers next year.

In these economic times, any investment with a return of 14.72 to 1 seems like an investment worth making.
Business groups, too, would rather see a collection of unpaid taxes than new taxes.

It’s not like the commission is unleashing the auditors on unwitting state residents and businesses. Most of these non-paying filers have worked with the state on tax problems and know their situation. The Commission’s return on investment may shrink, but the ROI is currently much greater than expected and returns of better than 7 to 1 are forecast at least for the next several years.

“There are folks who will always try to not pay their fair share of taxes. That’s why there will always be the need for auditors and collectors,” said Tilley.

Before we raise taxes, let’s close the gap.
Robb Hicken is managing editor of the Idaho Business Review.

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One comment

  1. Robb,
    Thinking on the Idaho budget crisis, and looking at the day’s technology news, especially as it relates to seemingly disparate events, i.e. Groupon’s secondary commercial real estate effects (look for more imitators), Branson & Murdock’s new wireless, pad-based newspapers, etc, etc. I sense a deep unease about the state’s future beginning to permeate. Even the bishops will have a helluva time selling this to the faithful.

    With Idaho’s isolation, harsh climate & remoteness, a distrustful unwillingness to invest in anything (education-technology-infrastructure), a xenophobic & atavistic political class & culture (i.e. no constitutional municipal home-rule, dystopic “conservative values” that are genuinely anti-growth) …it’s entirely possible that Idaho further becomes an Albania-like, hermit-kingdom of reactionaries. You end up with, say in 5 years, living in a “museum of the 1960s”. You guys will realize it in 2011; that’ll be the year the worm turns.