BOISE – Idaho House Republican leaders introduced complicated legislation Wednesday to make big changes in Idaho’s tax system – lowering the top income tax rate, removing the sales tax from groceries and raising the gas tax by 7 cents a gallon.
The sweeping proposal was introduced just two days before lawmakers had hoped to adjourn their session this year. They acknowledged it will go at least into next week.
House Speaker Scott Bedke said the tax bill, along with other measures that are now moving forward, matches his initial goals for this year’s legislative session: to make significant improvements in education and in transportation infrastructure, and to make Idaho more attractive to businesses. The House already has endorsed a $125 million, five-year plan to boost teacher pay; that measure won unanimous support from a Senate committee Wednesday afternoon. Also, several other bills to boost road funding have been introduced.
Bedke said lowering the top individual income tax rates would help attract businesses because most Idaho businesses, including partnerships, startups and entrepreneurs, pay their taxes there rather than through the corporate tax.
“That’s where the action is going to be in Idaho’s economy: Startups,” he said.
Under the bill, the gas tax would rise and the sales tax would come off groceries on Oct 1. The current grocery tax credit 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 end result of all the changes in the bill, once they’d taken full effect in fiscal year 2017, would be roughly $50 million less in general fund revenue and $65 million more in road money. Top earners would pay lower income taxes, while low-end earners would see no income tax changes; some in the middle would see a small income tax increase. All taxpayers would lose the current grocery tax credit, but get more than that amount back by no longer paying sales taxes on food.
“There’s been great support to remove sales tax off groceries,” said House Majority Leader Mike Moyle, R-Star. “A lot of states are going there – Utah, New Hampshire – because it’s what the people want.”
He also noted that removing Idaho’s current 6 percent sales tax from groceries would help border counties, who face competition across state lines from states like Washington that don’t tax groceries.
Moyle estimated that the impact of the big changes in the tax bill would result in a $15 million increase in general fund revenues in the coming fiscal year, which starts July 1.
“But in the out years … there is a substantial decrease in there,” he said.
The gas tax increase, raising Idaho’s 25-cent-per-gallon tax to 32 cents, would raise $65 million a year more for road work; gas taxes go directly to transportation, rather than to the state’s general fund, which underwrites schools, prisons, health and welfare programs and more.
House Minority Leader John Rusche, D-Lewiston, wasn’t impressed.
“It’s a shell game,” he said.
The proposal, which will be up for a full hearing in the coming days in the House Revenue and Taxation Committee, would lower the top income tax rate for individuals 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.
“We did not want to use money collected from individuals to subsidize lowering the rate for corporations,” Moyle explained.
Bedke acknowledged that consideration of the big changes likely would extend the legislative session.
“We had a broad segment of the House working on these issues,” Bedke said. “It’s taken time to bring all those things together.”
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