Lauren Necochea, director of the Idaho Center for Fiscal Policy, told lawmakers on the Tax Working Group this morning that the proposed cut to the top personal income tax rate from 7.4 percent to 7.3 percent would benefit wealthier Idahoans. “Not surprisingly, the benefits are highest at the top of the income spectrum,” she said. “The middle 20 percent of households will see just a $6 cut, on average. For the top 1 percent of earners, the average tax cut will be $757.”
Necochea also addressed the proposal to remove the sales tax from food and eliminate the grocery tax credit. She said her analysis shows that move also would be of more benefit to high-income earners. “For example, a family of five that spends very modestly on groceries might find that $500 in grocery tax credits are better for the family budget than a sales tax exemption – they’d have to spend more than $700 per month on food to be better off under the proposed legislation,” she said. “By the same token, a family that makes more expensive choices at the grocery store, e.g. imported cheeses, premium cuts of meat and organic foods, would receive a much higher benefit from this proposal.”
Necochea noted that some of the poorest Idahoans receive food stamps, or SNAP benefits, which are not subject to the sales tax, but they’re also not eligible for the grocery tax credit for the time that they receive those benefits.
Sen. Jeff Siddoway, R-Terreton, asked her “if we are truly concerned about the most needy in our society,” which option makes more sense, removing the sales tax from food or keeping the grocery credit, and Rep. Gary Collins, R-Nampa, had a similar question, as did Sen. Grant Burgoyne, D-Boise.
Necochea said the impact will vary depending on household income and other factors. “Some households are going to be better off, for some it’s a wash, and some households might be slightly worse off,” she said. Necochea said the question is what lawmakers’ goal is. “If we just want to be a state that doesn’t have sales tax on groceries, this accomplishes the goal,” she said.
Rep. Robert Anderst, R-Nampa, asked Necochea about the “impact to the stability of the sales tax … if we remove sales tax from food.” She said she’s combed through data from Utah to try to answer that question. “Food is very stable, and when you take it out you’re going to have more noise in the data, and the collections will be a little more erratic.”
Rep. Dell Raybould, R-Rexburg, noted that Necochea’s estimate shows a $55.6 million hit to the state general fund, including a $21 million hit to local governments. “To me that looks like you’re looking at a $75 million reduction,” he said, as the state would “have to give $21 million back to the counties to make them whole.” Legislative budget analyst Keith Bybee said in calculating the fiscal note for the bill, staffers assumed that the state would reduce revenue sharing amounts to counties by that amount, so that they, not the state general fund, would take the hit.