Idaho House passes tax bill, sends to Senate

BOISE – The Idaho House endorsed sweeping tax changes Monday, to eliminate the sales tax on food, raise the gas tax and change the state’s top income tax rates – even as two new analyses showed the overall impact would be a tax increase for middle-income Idahoans and a break for the wealthy. Opponents dominated the House debate on Monday, but the bill passed 53-17, and headed for the Senate. All 14 House Democrats voted no, as did three House Republicans from southern Idaho, though none of those three spoke. All the “yes” votes came from House Republicans. “It removes the sales tax off of groceries in the state of Idaho,” House Majority Leader Mike Moyle, R-Star, told the House. “That’s a big step.” He said, “It moves the ball so Idaho can become more economically competitive with surrounding states.” Backers of the bill said Idaho is surrounded by states that, like Washington, either don’t impose sales tax on groceries, or that, like Oregon, don’t have sales tax at all. And they said Idaho’s current top individual income tax rate of 7.4 percent is higher than most surrounding states. Under the bill, Idaho’s 25 cent per gallon gas tax would rise 7 cents to 32 cents on Oct. 1, with all the money raised from that move to go toward the state’s $262 million road-maintenance shortfall. On that same date, the sales tax would come off groceries. The current grocery tax credit, which Idahoans file for on their state income tax returns and which offsets a portion of the sales tax they pay on groceries, would be eliminated in the current tax year, retroactive to Jan. 1, 2015; that means people would get it when they file their income tax returns this spring, but not next year. The state’s top individual income tax rate would drop from the current 7.4 percent to 6.7 percent. Taxpayers who now pay 7.1 percent also would drop to 6.7 percent; but those who now pay 6.1 percent would rise to 6.7 percent. That creates what Moyle called a step toward a flat tax. Lower income tax brackets, which now pay between 1.6 percent and 5.1 percent, wouldn’t change. Neither would Idaho’s corporate tax rate, which would stay at 7.4 percent. All taxpayers also would pay more in gas taxes; the Associated Taxpayers of Idaho estimated the average driver would spend just over $30 more a year. The end result of all the changes in the bill, once they’ve taken full effect, would be roughly $55.5 million less in revenue to the state’s general fund, and $63.7 million more in road funds, according to the Idaho State Tax Commission. Because of the timing of the changes, the bill estimates a $15 million gain in state tax revenue in fiscal year 2017, followed by a $70.5 million drop the next year. House Minority Leader John Rusche, D-Lewiston, said, “At its heart, it’s a tax hike for middle-class Idahoans. It’s dressed up in a shell game, a financial circus. You’ve had multiple analyses, from the Idaho Center for Fiscal Policy and from the Associated Taxpayers, that show middle-income Idahoans get to fund this party. … I know there’s bright people here in the House, but if this is the best that we can come up with, all I can do is shake my head and ask you to vote no.” The Idaho Center for Fiscal Policy analyzed the effect of HB 311 on Idahoans of various income levels. The conclusion: People in the middle 20 percent, with incomes ranging from $38,900 to $61,000 a year, would lose the most, and see an overall increase in taxes of, on average, $192. People at the top – the top 1 percent of earners, with annual income of $427,400 or more – would gain the most, seeing a tax cut of, on average, $4,990. The lowest-earning 20 percent of Idahoans, with incomes of less than $21,300 a year, would see a tax increase averaging $68. The break-even point, according to the group’s analysis, is around $93,800 a year; people who make less than that amount would see overall tax increases, while people making more than that amount would see tax cuts. Rep. Phylis King, D-Boise, said, “This will be a disastrous tax hike for middle income families. It will also decrease our revenues.” She said the tax changes in the bill would jeopardize Idaho’s ability to fund a five-year teacher pay improvement plan that’s already passed both the House and Senate. Moyle said , “I agree with you schools are important. Idaho is not going to have more money for schools, though, if you do not grow the economy. … This bill does that.”