This Idaho bill will cut taxes, give rebates and boost education funds. How it works

Tax cuts and rebates are coming to Idahoans.

The Idaho Legislature, during a special session on Thursday, approved a bill that will create a flat 5.8% income tax for individuals and corporations. It will also provide $500 million in rebates, a minimum of $300 for each Idaho resident who filed tax returns in 2020 and 2021.

The legislation will return Idahoans their tax money amid a $2 billion record tax surplus and 40-year-high historic inflation, supporters said.

“That’s phenomenal,” said Rep. Steven Harris, R-Meridian, who co-sponsored the bill. “We have a boatload of money that needs to be dealt with appropriately.”

The bill also sets aside $410 million in sales tax revenue for education, although the Legislature will have the option to appropriate the funds going forward.

Republican Gov. Brad Little proposed the tax cuts, rebates and education boost and called Idaho lawmakers to Boise to consider the legislation, which comes months before the November general election. Little quickly signed the bill Thursday after the Legislature adjourned.

“The successful extraordinary session demonstrates government working FOR THE PEOPLE,” said Little, who’s running for reelection, in a statement after the vote. “Returning the people’s money is the right thing to do, and the education investments support families, help us keep up with growth, enhance our quality of life, and prepare a workforce to meet the changing needs of employers.”

Some Republicans fought the additional funds for schools and derided the broad topics covered by the bill, which, they argued, was an unconstitutional overreach by the executive branch.

Ultimately the governor’s proposal passed by a large margin.

“We are the body that put that surplus in place, we are the body that should set it aside and give it back to the taxpayers in Idaho,” said Rep. Laurie Lickley, R-Jerome.

Rebates promised soon

It’s the third income tax cut in two years. The current rate for top individual and corporate income tax bracket is 6%.

The new 5.8% rate will apply to all Idaho taxpayers. The bill will exempt from taxation the first $2,500 of income for individuals and $5,000 for joint filers, but those figures will be higher when they’re inflation-adjusted.

High earners will see the greatest benefit from the flat tax, while most Idaho households will not see a significant change in tax bills, according to the Idaho Center for Fiscal Policy.

Each resident who filed income taxes for both the 2020 and 2021 tax years will receive $300 — or $600 for joint filers — or 10% of income taxes paid for 2020, whichever is greater.

Sen. C. Scott Grow, R-Eagle, who earlier this year co-sponsored a proposal to eliminate property taxes, said the income tax cut could have been addressed during next year’s legislative session. But the surplus compelled lawmakers to provide tax relief now.

“I would have preferred to return more,” Grow said. “I would hope that those of us that are here next session ... can work together to get legislation that will give us ongoing, meaningful, permanent property tax relief.”

The one-time rebates will cost the state $500 million, and the ongoing tax cut will trim $162 million in income tax revenue every year.

Taxpayers should receive their rebate checks this month, Harris said.

Educators praise boost for schools

During a brief period of public comment Thursday, Idaho educators lauded the proposal to create a new fund for education as public schools struggle to hire teachers and fund facilities.

The bill will direct $410 million in state sales tax revenue annually to education. Most of the money will go to Idaho’s public school income fund, while the remaining $80 million will be directed to workforce development programs for in-demand careers, such as nursing and teaching.

Brianna Gibson, an educator at Ridgevue High School in Nampa, told lawmakers she’s been reconsidering her future as an educator.

“It’s not because my job leaves me unfulfilled or is too difficult,” Gibson said. “Instead, I’ve been questioning whether my choice of career is valued in our society anymore.”

Gibson said she’s wondered whether elected officials “who oversee virtually every minute of my work” appreciates her contribution. But she added that Little’s proposal leaves her hopeful and inspired her to testify.

An initial draft of the legislation included an inflation-adjustment clause, which would have increased the education fund by 3% annually starting in fiscal year 2025. The clause was removed from the bill Wednesday and excluded from the legislation approved by lawmakers Thursday.

“It’s really unfortunate that the tax pieces of this will adjust for inflation while our commitments to kids will erode over time,” said House Minority Leader Lauren Necochea, D-Boise.

Following the vote, Idaho Education Association President Layne McInelly called the investment a “strikingly bold step away from decades of chronic underfunding of Idaho’s public schools.”

“This funding creates a huge opportunity for school districts to make an incalculable difference in our public school classrooms,” he said in a statement.

Constitutionality questioned

Some lawmakers asked whether the bill — which involves taxation and education — would violate the Idaho Constitution’s one-subject rule, a prohibition on multi-subject bills.

“You can’t bring one important issue to a bill and then put a whole bunch of pork in it to get it passed,” said Rep. Charlie Shepherd, R-Pollock, who supported the bill but brought up the concern in a committee meeting. “It might come back to bite us. This is a dangerous road to go down.”

An analysis from the Idaho attorney general’s office said the bill is legally sound, and a constitutional challenge “for violation of the one-subject rule is unlikely to prevail.”

Reps. Heather Scott, R-Blanchard, and Tammy Nichols, R-Middleton, who opposed the education boost but supported the tax changes, unsuccessfully sought to divide the proposal into multiple bills.

“The Legislature didn’t write this bill; the executive branch wrote this bill,” Scott said. “I think the problem may be that the executive branch is unclear what the Constitution says: one topic per bill.”

Bill will repeal, replace education initiative

The tax changes will supersede Proposition 1, a ballot initiative to raise taxes on wealthy Idahoans and corporations to better fund education, if voters approve the initiative in November.

Proposition 1 — also known as the Quality Education Act — would raise more than $320 million annually by creating a new income tax bracket for Idaho taxpayers who earn $250,000 or more in taxable income, and by increasing corporate income taxes from 6% to 8%.

The ballot initiative, would take effect Jan. 1, but the flat tax will take effect Jan. 3, superseding the initiative, according to a legal opinion by the Idaho attorney general’s office.

Luke Mayville — co-founder of Reclaim Idaho, the citizen group that placed the initiative on the ballot — said although the legislation includes some “bad elements,” it represents a victory for education funding that wouldn’t have been possible without the work of the organization and its volunteers.

A $410 million education boost would have been considered “an extreme proposal” by most state lawmakers just two years ago, Mayville added.

“By placing the Quality Education Act on the ballot, the citizens of Idaho have forced the Legislature to make the largest investment in Idaho public schools in a generation,” he said.

Voters will see advisory question on ballot

The November ballot in Idaho will also include an “advisory question” that asks voters whether they support the legislation’s intent, including issuing $500 million in rebates.

The results of the advisory question will guide the Legislature on whether it’ll continue “ongoing elements” of the bill. But the question is non-binding and carries no legal authority for the Legislature.

“Its purpose here is perplexing,” said Senate Minority Leader Michelle Stennett, D-Ketchum. “Voters may be misled to believe by voting ‘yes,’ they will receive more money.”

Despite the concerns, many Republicans and Democrats said they reluctantly supported the legislation, even though they disagreed with key aspects, because it included rebates.

“You cannot oppose tax relief when our citizens are hurting,” said Sen. Regina Bayer, R-Meridian.

Accountability Editor Hayat Norimine and Education Reporter Becca Savransky contributed.

This story was originally published September 1, 2022 at 5:35 PM.