Idaho House passes sweeping tax reforms

BOISE – The Idaho House endorsed sweeping tax changes Monday that would increase taxes for middle-income Idahoans and cut taxes for the state’s wealthiest, according to two new analyses.

The bill also would eliminate the sales tax on food and raise the gas tax.

Opponents dominated the House debate on Monday, but the bill passed 53-17 and headed for the Senate, where its fate is uncertain.

House Majority Leader Mike Moyle, R-Star, said the changes will make Idaho “more economically competitive with surrounding states.”

Backers of the bill said Idaho is surrounded by states that either don’t impose sales tax on groceries or 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 going toward road maintenance. On that same date, the sales tax would come off groceries.

The state’s top individual income tax rate would drop from 7.4 percent to 6.7 percent. Taxpayers who now pay 7.1 percent also would pay 6.7 percent; but the rate for 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.

The Associated Taxpayers of Idaho estimated the average driver would spend just over $30 more a year in gas taxes.

The end result would be roughly a $55.5 million reduction in revenue to the state’s general fund and $63.7 million more in road funds, according to the Idaho State Tax Commission.

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 see an overall increase in taxes of, on average, $192. The top 1 percent of earners, with annual income of $427,400 or more, would see a tax cut of $4,990 on average.

The lowest-earning 20 percent of Idahoans, with incomes of less than $21,300 a year, would see a tax increase averaging $68. The group’s analysis found people who make less than $93,800 a year would see overall tax increases, while people making more 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.”