Panel likes Johnson's inflation index plan

BOISE - Sen. Dan Johnson, R-Lewiston, had a successful debut with the Idaho House Revenue and Taxation Committee Monday, introducing legislation that could save the state upward of $10 million per year.

The committee, which typically frowns upon efforts to increase state revenues, was intrigued by Johnson's proposal to replace one inflation index with another.

The move would allow for a more accurate measure of cost-of-living changes, he said.

Back in 2000, the Legislature approved a tax relief package that kept the state from "taxing inflation" by requiring income tax brackets to be adjusted upward each year. The CPI-U (consumer price index-urban) was the index chose to measure the inflation rate.

Johnson wants to replace that with the C-CPI-U, a "chained" index that accounts for changes in consumer behavior. It typically trends a little lower than the CPI-U, he said, meaning income tax brackets wouldn't shift quite as much.

"Both indexes will lower your taxes, but one (the CPI-U) lowers them more," he said.

Johnson said the CPI-U is considered an upper boundary on the actual change in the cost of living. It represents a fixed basket of goods and services; the basket is only updated every two years.

The chained index, by contrast, is updated every month to reflect changes in consumer behavior.

"As items become more expensive, most consumers will switch to less expensive or generic brands, so at the end of the year their cost of living doesn't increase as much," he said. "The chained index measures those substitution effects. It's designed to be a closer approximation of the cost of living."

Using the chained index in solid waste contracts has saved the city of Lewiston enough the past several years to provide three rate rebates, Johnson said.

The committee chairman, Rep. Gary Collins, R-Nampa, said at first he didn't have a clue what Johnson was talking about, "but since then I've done some studying. I thought it would be an interesting discussion to have."

Rep. Grant Burgoyne, D-Boise, objected to the bill on the grounds that, in effect, it amounted to a $10 million to $12 million "tax increase." The bulk of the committee, however, agreed with Collins.

"I find this intriguing. I'm learning some new things and I'd like to explore it further," said Rep. JoAn Wood, R-Rigby.

Sen. Dean Cameron, R-Rupert, is interested enough that he expects the joint budget committee to address the issue during its interim meetings this summer.

"I think all of us recognize that many of our state contracts and many provisions in the tax code are tied to an inflation index, but I don't think many of us understood there might be a more accurate index," he said. "The more accurate the index, the better chance we have of not overestimating our needs."

This is the first piece of legislation Johnson has introduced.

"If the true intent (of the 2000 tax relief package) was to hedge against inflation, then let's hedge - but not go beyond that," he said. "If we can look for ways to run government better, we ought to do it."

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Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.