Idaho Senate tax chair noncommittal on tax cut approved by House

A straight party-line vote in the Idaho House on Thursday sent a proposed income tax cut for individuals and businesses over to the Senate, where similar efforts in recent years have been defeated or ignored.

After the House vote, the chair of the Senate tax committee said he would weigh the proposal in the context of both the overall state budget and broader tax policy considerations, and wasn’t sure about a hearing.

“I’ll make that decision later,” said Sen. Dan Johnson, R-Lewiston.

The House’s 58-11 vote came after lengthy debate in which Democrats noted the state’s ongoing commitment to increasing funding for education, uncertainty over future health care costs, unmet obligations for road and bridge maintenance, and the lack of hue and cry among businesses and the public at large for tax reductions.

A projected state surplus, Democrats argued, should not form the basis for setting long-term tax policy.

“I think we need to be very cautious and satisfy ourselves that there is in fact a surplus there that can be safely depleted,” said Rep. Ilana Rubel, D-Boise. “I really challenge the baseline assumption that (anticipated surplus) would cover these lost revenues once our existing obligations are met.”

Idaho’s personal income tax rates are divided into seven brackets from 1.6 percent to 7.4 percent based on income. For the 2016 tax year, the top rate kicks in at an adjusted gross income of $10,905.

The tax cut proposed by House Majority Leader Mike Moyle, R-Star, reduces the top personal income tax rate, as well as the 7.4 percent corporate tax rate, to 7.2 percent. It also exempts the first $750 from any taxation.

On the House floor Thursday, Moyle pushed back against claims that his plan would disproportionately benefit the state’s wealthiest taxpayers. The Idaho Center for Fiscal Policy’s assessment of the bill found that middle-income households earning $38,000 to $59,000 a year would see an average reduction of $32, while the wealthiest 1 percent earning more than $418,000 would see an average reduction of more than $1,500.

Moyle noted that the top Idaho income rate starts to apply at a relatively low level of income.

“Where is the line in Idaho when you become rich?” Moyle said. “If your adjusted income is $10,905, welcome to the world of Idaho. You’re ‘the rich.’ That’s a problem.”

He said only one of Idaho’s neighboring states “has a higher income tax. That’s Oregon. But again, you’ve got be making a substantially higher income to fall into that upper bracket.”

Oregon’s top rate of 9.9 percent applies on adjusted gross income of at least $125,000 for a single person or twice that for a married couple. Its second-highest rate, which is 9 percent, kicks in when income reaches $8,400 for a single person.

Moyle added that his tax cut “doesn’t harm education. There’s a way to do both.” Democrats cited research showing that states with the best education systems had the most robust economies, and Moyle argued that tax cuts would attract business and would help the economy, thereby helping education.

Johnson previously served on the joint legislative committee that reviews the governor’s spending proposal and writes the budget on which lawmakers vote. That committee is still doing its review.

Johnson said he wanted to see what spending recommendations emerge from the budget writers and whether other tax legislation comes from the House. He said it would be at least two weeks before the committee weighs action on the House tax cuts.

“I’m open to looking at changes in our tax rates,” Johnson said. “But there has to be a feeling that the tax expenditures are beneficial to everyone and not just some and not others.”

This story was originally published February 2, 2017 at 3:37 PM with the headline "Idaho Senate tax chair noncommittal on tax cut approved by House."