A $200 million income tax-cut bill cleared the Idaho House tax committee on Monday on a straight party-line vote, as all GOP panel members backed the measure and only the panel’s two minority Democrats voted “no.”
The bill, measure, which now heads to the full House, would lower Idaho’s individual and corporate income tax rates to the tune of nearly $160 million; additionally, it would create a new non-refundable Idaho child tax credit of $130 per child for an additional $42.3 million tax cut.
But it wouldn’t fully offset the impact of federal tax changes on large Idaho families, who are losing the personal exemption they now get for each child.
Rep. John Gannon, D-Boise, said, “This is not a tax cut for many Idahoans. It is a (higher) tax bill for parents with children.”
Miguel Legarreta, executive director of the Associated Taxpayers of Idaho, calculated the impact of the bill on the ATI’s theoretical “Spud Family,” an Idaho family with an income of $84,901 a year. If the Spud Family had two children, its state income taxes would decrease by 3.1 percent; but if it had three, they’d increase by 2.4 percent. And if it had four children, the family’s state income taxes would go up 9.7 percent.
“Many Idaho families will see an increase in their Idaho-based taxes,” Legarreta told the House Revenue and Taxation Committee.
The interplay between federal and state income taxes is at the heart of the bill, which is being proposed by Gov. Butch Otter and GOP legislative leaders. It combines two things: Conforming Idaho’s state tax code to the changes that Congress passed in its federal tax-cut bill, and the new cuts in Idaho state taxes.
That’s in part because simply conforming Idaho’s tax code to the federal changes would mean Idaho would collect about $100 million more a year in state income taxes. Idaho uses the federal adjusted gross income as the starting point for its state income tax calculations, so federal moves to double the standard deduction while eliminating the personal exemption for each family member, among other changes, alter the bottom line.
At the federal level, the $1,000 per child tax credit was doubled to offset the impact of the change on large families. But Idaho doesn’t currently have a child tax credit in its state tax code. The proposal would create one, but it’s worth less than half the amount needed to offset the increase Idaho families would see.
House Majority Leader Mike Moyle, R-Star, said the new credit would help offset some, though not all, of the impact on those families. “We do have larger families in this state, and that’s a good thing,” he said. “We’re trying to offset some of the change.”
Gannon asked him why the bill didn’t account for those families by increasing the child tax credit and shrinking the overall income tax cuts.
“Overall, this is a tax reduction and a substantial tax reduction,” Moyle said. “While I share your concerns, I think that the $130 tax credit that’s proposed in here is a good thing for Idahoans.”
Among those speaking against the bill at Monday’s committee hearing was Julia Page, a board member of the Idaho Organization of Resource Councils.
“We want to prioritize ending the sales tax on food. This bill is using an unanticipated revenue windfall for a huge income tax break that barely reaches those in need,” she said. “Every day, families of all incomes have to pay 6 percent tax on the food that they buy … The sales tax on food is a regressive, unfair tax that hits disproportionately those who are least able to handle it. It is a shaky foundation on which to build the Idaho budget. We can do better.”
Last year, Idaho lawmakers passed legislation to eliminate the state’s 6 percent sales tax on groceries, along with the $100-per-person income tax credit that now partly offsets those grocery taxes, but Gov. Butch Otter vetoed the bill.
Among those speaking in favor of the bill on Monday was Alex LaBeau, president of the Idaho Association of Commerce and Industry, a business lobbying group.
“This is a bit more aggressive than we had even anticipated the Legislature would be able to do,” LaBeau said. “This legislation is taking a step in the right direction, especially on the corporate rate.”
The annual Tax Burden Study, which the Idaho State Tax Commission has prepared each year since the 1970s, shows that Idaho’s total state and local tax burden per person ranks 48th among the 50 states plus the District of Columbia, and falls 29.6 percent below the U.S. average. It’s the lowest among 11 Western states. The state’s tax burden relative to income, which reflects Idaho’s relatively low wages, still ranks 37th nationally and 10th among the 11 Western states. It comes in 11 percent below the national average.
To become law, the tax-cut bill still needs to pass the full House, clear a Senate committee, pass the Senate and receive the governor’s signature.