Idahoans will soon see income tax cuts and rebates coming after Senate approves bill

It’s not exactly what many senators wanted, but the Idaho Senate voted on Tuesday to approve a $600 million income tax cut and rebate package, sending the bill to Gov. Brad Little, who championed the proposal ahead of this year’s legislative session.

House Bill 436 reduces the top individual income tax bracket and corporate tax rate from 6.5% to 6%. It also provides $350 billion in rebates, which cover either 12% of someone’s 2020 income taxes or $75 per taxpayer and dependent, whichever is greater.

Legislators debated whether the state’s $1.9 billion surplus should be spent on an income tax cut or other forms of tax relief, such as property taxes or income taxes.

“You don’t always get just what you want,” said Sen. Steve Vick, a Dalton Gardens Republican. “This money belongs to the people who work here and live here, and they should have it back in their pocket.”

Sen. Jim Guthrie, a McCammon Republican, said he expects much of the state’s surplus came from an influx of federal stimulus money during the pandemic. Guthrie said he worries whether the state’s economy will be as strong after “that spigot dries up.”

“It’s always been easier to do a tax cut than a tax hike, and I just hope we’re not over-extending our skies to the extent we have to make difficult tax policy decisions in the future,” he said.

Guthrie said the most “glaring source of angst” with House Bill 436 is the $350 million in one-time rebates. That money would be better spent on infrastructure and education, the Republican senator said. He ultimately still voted in favor of the bill.

“I think the shelf-life of that kind of benefit … is pretty short-lived,” Guthrie said of the rebates. “In fact, I can’t remember what I got last year on my rebate.”

Near the end of the debate, Senate President Pro Tem Chuck Winder, who said he had not intended to speak, urged senators to “look at the bigger picture.” The Boise Republican pointed to the governor’s wider plan to spend hundreds of millions on road and bridge improvements and other benefits to local governments, which could lower property taxes.

“This is going to be significant investment in the future of Idaho, and I think you all need to take a look at the bigger picture and not just bemoan that we’re giving a little bit back to the people,” Winder said.

“Everybody benefits,” he added.

Senators approved the bill in a 27-7 vote along party lines, after the House passed it on Jan. 20.

Republicans said it’s the largest tax relief bill in state history.

A family of two adult workers with two children that makes $110,000 per year would see a tax cut of about $988, or $582 from the rebate and $384 from the ongoing cut in the individual income tax rate. A family of four with a $50,000 income would see an $80 ongoing tax cut on top of a $300 rebate.

The bill would also reduce the tax rate for the second-lowest tax bracket — those whose taxable income is between $1,000 and $3,000 — from 3.1% to 3% and it reduces the number of tax brackets.

The tax cut and rebate package now heads to the governor’s desk. Little is expected to sign the bill into law.

Opponents favor other types of tax relief

Democrats in both chambers opposed the bill. They argued the $600 million price tag would limit other types of tax relief that could be achieved this session.

Sen. Janie Ward-Engelking, a Boise Democrat, said Tuesday that she has not received “one single email” from a constituent asking for an income tax cut, but hundreds have asked for property tax cuts and a grocery tax repeal.

“Once this bill goes through, we can’t claw this money back,” Ward-Engelking said.

Following the vote Tuesday, House and Senate Democrats called the bill “lopsided.” In addition to property and grocery tax relief, Idahoans want “well-funded schools,” said Sen. David Nelson, a Moscow Democrat.

“Why not help our local schools and provide the necessary funding needed to make essential facility repairs, rather than force districts to rely on supplemental levies for general maintenance?” Nelson said in a news release.

Sen. Christy Zito, a Hammett Republican, attempted to amend the bill to add a grocery tax repeal provision. The motion failed 26-8.