Gov. Butch Otter’s tax-cut bill was introduced in the House Revenue & Taxation Committee this morning on a party-line vote, with the panel’s two Democrats dissenting. The nine-page bill would conform Idaho’s income tax code to federal changes, including the doubling of the standard deduction and the removal of dependent exemptions; and then offset those changes – which would cost Idaho taxpayers nearly $100 million more next year – with additional tax cuts: Lowering all personal and corporate income tax rates by 0.475 percent, or $159.6 million; and creating a new non-refundable Idaho child tax credit of $130 per child.
Rep. John Gannon, D-Boise, who voted against introducing the bill, declared afterward, “I think it’s anti-child.” That’s because fully offsetting the loss of the dependent exemption would cost $287 per child, but the Idaho credit in the bill is set at $130 per child. Otter originally proposed a lower amount, $85 per child.
Elimination of the dependent exemption removes any break for larger families from the federal tax code. Congress addressed this by doubling the child tax credit to $2,000, but as of now, Idaho doesn’t have a child tax credit in its state income tax laws.
Idaho’s state income tax is based on the federal system – the state uses federal adjusted gross income as the starting point for state income tax return calculations. That’s why conforming to federal changes has such a big impact.
House Majority Leader Mike Moyle, R-Star, presented Otter’s tax bill to the House committee, on which he serves. The bill’s Statement of Purpose lists its lead sponsors as Otter, Senate President Pro-Tem Brent Hill, R-Rexburg, and Senate Majority Leader Chuck Winder, R-Boise.
“Arguably, this bill is the biggest tax reduction bill we’ve seen in the years that I’ve been in the Idaho Legislature and maybe in Idaho history,” Moyle told the committee.
The bill conforms Idaho’s tax code to federal changes on standard deductions; personal and dependent exemptions; itemized deductions, including new limits on the deductibility of state and local taxes; allowing net operating losses to carry forward; medical expenses, which now become deductible when they hit 7.5 percent of income instead of the previous 10 percent; and the deduction for 529 education savings accounts, which the federal tax bill expanded to apply to K-12 education expenses in addition to college costs. Conforming Idaho’s tax code to the federal changes has a net effect on individual Idaho taxpayers of plus-$118.8 million, while it means Idaho businesses pay $21.4 million less in state taxes.
The bill’s changes offset that net conformity impact of $97.4 million with $144.5 million in cuts to Idaho individual income taxes; $15.5 million in cuts to Idaho corporate income taxes; and $42.3 million for the new Idaho child tax credit. That adds up to a total of $201.9 million in tax cuts, and a net reduction in state general fund tax revenues, after the conformity changes, of $104.5 million.
House Minority Leader Mat Erpelding, D-Boise, questioned why the conformity issue and the tax cuts were put together in a single bill. “It just seems to me that this is a really big bill, built on some speculation for the next year,” he said.
Moyle responded, “I think it’s wise to do it at one time. But it also generates the income you’re going to need for this tax cut, the tax reduction going forward.”
Today’s committee vote clears the way for a full hearing in the committee. The measure should be assigned a bill number and appear on the Legislature’s website later today.