Panel holds hearing on grocery tax
BOISE – Idaho Gov. Butch Otter says while it’d be great to give every Idahoan a tax break equal to the amount they pay in sales taxes on groceries, the state can’t afford the $92 million hit to the state budget that would cause.
That’s why Otter is proposing a big grocery tax credit only for low-income Idahoans, which will cost the state $22 million a year in lost sales tax revenues.
“This bill makes the judgment call that upper-income Idahoans prefer the budget stability that comes from this approach for funding state needs in education, public safety, etc.,” Otter’s chief economist, Michael Ferguson, told lawmakers Monday. “This bill is targeted at Idaho’s working poor.”
The governor’s bill, HB 80, is one of four competing proposals to provide tax relief for Idahoans who now pay the state’s full 6 percent tax on groceries, while most states, including Washington, charge no sales tax on groceries. The House Revenue and Taxation Committee held a public hearing on all four bills Monday morning, at which testimony favored the governor’s bill. The panel plans to vote today.
The other bills include HB 81, sponsored by Rep. Cliff Bayer, R-Boise, and a large group of lawmakers, to raise the grocery tax credit for everyone, at more than twice the cost of Otter’s bill; HB 82, sponsored by Reps. Jim Clark, R-Hayden Lake, and Phil Hart, R-Athol, to phase out the sales tax on groceries over four years; and HB 83, sponsored by Rep. Wendy Jaquet, D-Ketchum, to cut the sales tax on groceries in half to 3 percent right away.
Seven people testified at the public hearing. Four of the seven spoke in favor of the governor’s bill. One preferred Jaquet’s proposal. Two others expressed no preference, but cautioned against causing instability in Idaho’s revenue system that could threaten funding for schools or other programs.
Kathryn McNary, a member of the Idaho Citizens Action Network, said she favors the governor’s bill. “This sales tax rate falls much more heavily on low and middle-income families such as me,” she said.
Judy Brown, director of the Idaho Center on Budget and Tax Policy in Moscow, said her group analyzed the bills and endorsed the governor’s bill, because “it reduces the tax burden of precisely those families hardest hit by Idaho’s regressive sales tax.” If anything, she said, she’d like to see the bill expanded slightly to include slightly higher incomes and not exclude all who receive any amount of food stamps.
The annual price tag for each of the bills varies, with Otter’s the least expensive at $22 million. Bayer’s would cost the state $47.5 million a year. HB 82 would eventually eliminate as much as $180 million in annual sales tax revenue. HB 83 would cut roughly $90 million.
Committee Chairman Dennis Lake, R-Blackfoot, said, “My sense is that HB 82 and 83 are probably too expensive for us to take that approach in solving the problem.” He and other panel members said they’re well aware that any decision they make affects the state budget – and drives decisions on funding for crucial state programs, from education to drug treatment to prisons.
Ferguson noted that Idaho had a ballot measure in 1984 – when the sales tax was 4 percent and the grocery tax credit was $15 – to exempt groceries from sales tax, and it failed.
Ferguson said increasing the credit is less expensive, less complicated and more equitable for taxpayers and retailers than removing the sales tax from groceries, and he provided the committee with studies from other states showing as much.
He also noted that if lawmakers didn’t want to remove the current $20 annual grocery tax credit from anyone who receives it now, they could keep that in place while also adopting the governor’s plan to give the low-income larger credits. That would cost $11.5 million more than the governor’s plan, or $33.5 million a year.
“In the final analysis, the $22 million impact of this bill was seen as the optimal balance point between tax/revenue policy and its broader impact on competing budget priorities,” Ferguson told the legislators. “Any additional cost beyond the $22 million associated with HB 80 will have to come at the expense of some other element of the budget.”