Idaho bill would use surplus to give wealthiest residents the largest tax cuts
A new bill approved by the House on Wednesday would use $389.4 million of state general funds for tax cuts — and the largest tax rebates would go to the wealthiest households.
House Bill 332 would provide an income tax cut in two ways. One would be a drop in the state’s income tax rates, which would be retroactive to Jan. 1 of this year and provide an estimated $169.4 million in ongoing tax cuts every year. The other would be a one-time tax rebate based on income that would cost the state roughly $220 million.
Rep. Steve Harris, R-Meridian, said the bill takes advantage of the state’s current $600 million surplus.
“This tax plan returns that surplus to its rightful owners, the taxpayers of Idaho,” Harris said in a released statement Wednesday. “It also changes tax policy for the future to make it more fair to individuals, small businesses and families.”
But households in the lowest income bracket — those who make less than $24,000 a year — would receive an average of $78 from the bill, according to an analysis by the Idaho Center for Fiscal Policy. Households in the top 1% in Idaho — those making above $482,000 a year — would receive an average $8,863 back.
Democrats said the bill could also jeopardize $400 million in federal COVID-19 relief the state receives this year because the state is not supposed to spend the funding on tax cuts.
The center’s analysis also reported that $17 million of that funding would be used for corporate shareholders for companies based in Idaho. Of that amount, the vast majority — $13.8 million — would go to out-of-state shareholders, according to the analysis.
House members approved the bill in a 58-12 vote along party lines after it was fast-tracked through the process for a debate Wednesday morning. The measure had 45 co-sponsors ahead of the debate, a supermajority for the House.
House Republicans said the bill provides income tax relief to those who pay it. Democrats criticized the bill for failing to offer tax relief to those who need it most.
Democrats blast bill for ‘lopsided’ approach to tax cuts
House Assistant Majority Leader Jason Monks, R-Meridian, said tax relief should be reserved for somebody who pays those taxes. Rep. Brent Crane, R-Nampa, also said the bill could be seen as unfair because it provides money to those who don’t pay income tax. The bill includes a $50 minimum rebate per person for those who don’t pay income tax.
“Well, tax relief by definition is for those that pay taxes,” Monks said. “You can’t provide tax relief to somebody who doesn’t pay taxes.”
But Democrats criticized the bill for wasting state resources on tax cuts that largely benefit the wealthy and don’t provide the property tax relief residents are calling for. Critics said that with the state’s $600 million-plus surplus this year, legislators were in a good position to fund much-needed improvements to education or infrastructure this year.
House Assistant Majority Leader Lauren Necochea, D-Boise, called the bill “incredibly lopsided.” She urged legislators to consider property tax assistance or other alternatives, like eliminating the sales tax on groceries or child care credits.
“We ought to be putting more dollars into the hands of the working Idahoans who power our economy,” Necochea said.
Rep. Mike Kingsley, R-Lewiston, said he’s “never had a poor person offer me a job.”
How the tax cuts would work and who benefits
Harris’ bill would provide both an income tax rebate and lower income tax rates. It would drop the tax rates for all income brackets, but those in the highest brackets receive more of a tax break than those with the lowest incomes.
In Idaho, residents qualify for the highest income tax rate if they make more than $11,760 in taxable income a year — for 2020, they will have to pay 6.925% of their earnings above that amount, according to the Idaho State Tax Commission. Married couples qualify for the highest rate at $23,520 a year.
The bill would drop the highest income tax rate to 6.5% — more than a 0.4% drop from the current rate of 6.925%. The same drop would be applied to those who fall in the second- and third-highest income brackets. Households in the lowest bracket — an individual making less than $1,568 a year — would be given a 0.25% drop in the tax rate.
On top of the tax rate cuts, the bill would provide rebates. Households would receive a check calculated based on 9% of the amount of taxes a household owed in 2019, with a minimum $50 payment per person. A family of four who didn’t owe any taxes in 2019 would still receive $200 off the rebate, for example.
An earlier version of the bill would have also shrunk the sales tax rate and eliminated the grocery tax credit. The sales tax reduction was taken out.
Alejandra Cerna Rios, director of the Idaho Center for Fiscal Policy, said Wednesday that the bill doesn’t take a full view of the tax load, given that lower income residents pay sales taxes, property taxes and fees.
“To ensure our state fully recovers from the recession, we must make long-term investments in proven strategies for economic growth,” Cerna Rios said in a statement. “By focusing on cuts at the top, the current proposals do not meet the objective of bolstering middle-class families who have been hit the hardest by the recession.”
Critics point to Idaho education needs
The debate on the House floor grew testy as Democrats tried to bring up property tax increases or education needs. Rep. Steve Berch, D-Boise, said school districts rely on supplemental levies — which increase property taxes — because the state consistently underfunds education.
During Berch’s debate, Majority Caucus Chair Megan Blanksma, R-Hammett, objected and argued it wasn’t germane to the bill.
Idaho has consistently ranked last among all 50 states and D.C. in per-student funding. If state legislators gave the same amount they’re considering in tax cuts toward schools, Idaho would still rank 50th out of 51, said Layne McInelly, president of the Idaho Education Association.
“That’s how woefully short we are of funds here in Idaho,” McInelly said Wednesday, citing leaky roofs, moldy books and rodents in schools.
The lack of state funding prompts school districts to rely on more supplemental levies and doesn’t provide a level quality of education throughout the state, McInelly added.
House Majority Leader Ilana Rubel, D-Boise, said there will be no money left to fund services or provide other types of tax relief if the bill passes. She said the bill gives credence to those who fear that government is only working for the wealthy.
“If the only solution we’re willing to consider is an income tax reduction, it’s really hard to get money to the people who need it,” Rubel said. “This just feels deeply tone deaf to me right now. ... I don’t know if there’s really ever a good time to do a giant tax cut for the wealthy that jeopardizes funding of basic needs, but it sure is not now.”
This story was originally published March 17, 2021 at 3:42 PM.
