Jared Walczak, a policy analyst with the Tax Foundation, said a lot of states have been looking at “significant sales tax base broadening,” while Idaho hasn’t. That’s left Idaho with a relatively high sales tax rate, but “not collecting a lot,” he said. “There’s an opportunity to get that rate down by implementing some base broadening,” Walczak told the Associated Taxpayers of Idaho annual conference.
He recommended if the state went that route, to consider using “tax triggers,” which phase in the changes on a contingent basis only when revenue is available. “It’s actually a great way to get buy-in,” he said. “I think it’s a good middle path way to ensure a responsible approach.”
Walczak also said he thinks Idaho has too many personal income tax brackets, at seven. “Seven brackets is a lot – it’s one of the higher numbers in the country,” he said.
Senate Tax Chairman Jeff Siddoway, R-Terreton, challenged him on that, noting that if Idaho cut the number of brackets, it’d be asking some lower-income people to pay more and some higher-income people to pay less. “I’m just an old sheepherder, so I don’t know anything,” Siddoway said, “but let’s assume you want to maintain your base income. … How do you rationalize that when you start to reduce the number of brackets?”
Walczak said, “The best way … is to simultaneously raise an Earned Income Tax Credit or working families credit, or to have a zero bracket that would provide distributional neutrality.” An example would be that everyone earning less than $30,000 would be in a zero bracket; that’s what North Carolina did when it went to a flat tax, he said.
Siddoway responded, “So you’re saying you’ve gotta combine this with a credit for those low-income folks? If you’re looking to simplify … it sounds to me like you’ve just complicated it.”
Walczak said, “I don’t know that I would call that complicated.” He noted that the federal tax code long has included the EITC.
He said the foundation’s rankings for state business tax climate place Idaho 20th overall. For individual income tax, the state ranks 23rd highest; for corporate income tax, 24th; sales tax, 26th; unemployment insurance tax, 46th; and property and wealth taxes, 2nd, largely due to the state’s comparatively low property tax rates.