As of the close of the fiscal year ending June 30, Idaho had a cash balance of more than $100 million. To some people, that means it’s time for a tax cut. But there are a number of reasons why that might not be a good idea.

To start with, a cash balance is not the same as a surplus. Sometimes the balance in your checking account might seem higher than usual, and that might make you think you have extra money to spend. But that cash balance might not include some expenses you know you’ll have further down the line, such as going to the dentist or having the car serviced. You know those things are going to happen, but you don’t necessarily know how much they’re going to cost, so you keep some money around to pay for them when they happen.

In the same way, Idaho could have a number of expenses crop up before the next time the governor and the Legislature start setting a new budget in January. The biggest one is putting out and preventing wildfires this summer. We know there are likely to be fires, but we don’t know how much it will cost to fight them. Idaho has several other expenses like this that need to be accounted for before even thinking about a tax cut.

Another reason is that revenue — the amount of income the state brought in, primarily from tax collections — was $15 million lower than expected in the fiscal year ending June 30. That’s the first time this has happened since 2010.

This shortfall was mostly due to a shortfall in individual income tax collections. People who owed money to state government may be taking an extra long time to pay. Perhaps they got a filing extension to October, or perhaps they made a deal with the Tax Commission to have more time to pay what they owed. For whatever reason, they didn’t pay as much as legislators had expected.

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It may not necessarily mean a recession is coming, but it could; this the longest period of economic expansion the United States has ever had. So for that reason, a tax cut isn’t a good idea because the state may need that money to help provide services during the recession.

In fact, the shortfall in individual income tax collections was actually much bigger than $15 million: It was $113 million. Fortunately, other sources such as corporate income tax collections, sales tax collections, and other taxes were higher than expected, and almost made up for the shortfall.

If revenue came in less than expected, how did Idaho still end up with a cash balance? Because when the budget was originally set during the 2018 legislative session, it already was supposed to have a cash balance at the end. That’s just good sense when you’re doing a budget — you don’t want to make things too close in case there’s unexpected expenses. Similarly, the budget for the current fiscal year, 2020, is expected to have a cash balance at the end of $174 million.

That’s related to another reason why a cash balance isn’t a good reason to have a tax cut. When you cut taxes, those taxes are cut for every year going forward. A cash balance applies to a single year. Just because there might be a cash balance one year doesn’t mean there’ll be a cash balance in following years. If revenues continue to come in below projections, legislators will have to cut budgets — most likely education, human services, and corrections, the three biggest budgets — to make up for it.

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