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SPOKANE, Wash. - The states of Montana, Idaho, Washington and Oregon have radically different tax systems, but none has been able to escape the nationwide recession, economists say.

All had to face state budget gaps while continuing to provide education, social services and criminal justice programs, speakers at the Pacific Northwest Regional Economic Conference said Wednesday.

"Each of our tax systems is coming up short," said Lorrie Jo Brown of the Washington State Department of Revenue.

The most severe problems are in Oregon, although Washington, Idaho and Montana all faced budget shortfalls, Brown said.

Depending on existing tax structures, each state is looking at different solutions.


The state gets 44 percent of its revenues from individual income taxes, 29 percent from various sales taxes, 19 percent from state property taxes and 8 percent from corporate taxes.

The state's budget woes are the result of lower income tax revenues, largely become of the stock market's drop, and rising Medicaid costs, said Doug Young of Montana State University.

The state responded by raising some taxes, while cutting spending for social programs, higher education and corrections, Young said.

"There is strong support for K-12 education," Young said.

The lack of a general sales tax creates an unbalanced tax structure in Montana, Young said. Income tax revenues are reduced because a large number of people live in Montana while paying income taxes in another state, he added.


Idaho in 2000 got 49 percent of its state revenue from sales taxes, 45 percent from individual income taxes and 6 percent from corporate taxes.

State official Judith Brown said as recently as January 2002 the state had a small surplus. That prompted members of the nation's most Republican state legislature to enact a $100 million tax cut.

But Idaho faced a $200 million budget shortfall as the latest legislative session opened, largely because of falling income tax revenues, Brown said.

Over the years, Idaho has responded to budget woes not by raising taxes, but by cutting education spending, she said.

"The state didn't see education as an engine of economic development," Brown said.

The state passed some tax increases earlier this year after the longest legislative session in its history, Brown said. That included temporarily raising the sales tax from 5 percent to 6 percent. But the prior tax cut created a "structural deficit" that must still be dealt with, she said.

"The search for a fix is going to go on for awhile," she said.


Washington in 2000 got 69 percent of its state tax revenues from sales taxes, 16 percent from business taxes and 15 percent from state property taxes.

The state's billion-dollar budget shortfall last year was due in large part to voter initiatives that cut some taxes while requiring smaller class sizes and higher teacher salaries, said John Beck of the Gonzaga University School of Business Administration. There was also pressure from rising prison populations and business downturns, he said.

The state has studied changing its tax structure to seek more stability, Beck said. But lawmakers this year rejected the idea of raising many taxes, he said.

While education funding gets plenty of lip service in Washington, many businesses seem more interested in resolving transportation woes, Beck said. There is a feeling that educated workers can be lured from other states, he said.


Oregon in 2000 got 78 percent of state revenues from personal income taxes, 14 percent from various sales taxes and 8 percent from corporate taxes.

Tom Potiowsky of the Oregon Department of Economic Analysis said Oregon has posted the nation's highest unemployment rate for some time as the high-tech bubble burst. That has produced big deficits because so much of the state budget comes from personal income taxes, he said. The state budget for 2003-2005 is actually slightly less than for 1999-2001, he said.

Legislators are reduced to "crying and seeking psychiatric help," Potiowsky joked. The state has raised cigarette taxes and opened liquor stores on Sundays to raise revenues.

A proposal for a general sales tax pegged exclusively to help K-12 education is also gaining some favor, he said.

While the sales tax is considered an unstable source of revenue in Washington, it is considered more stable than income tax in Oregon, Potiowsky said.

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