With all due respect to the advocates of finding more money for K-12, higher education and other Idaho needs, the income tax bill that moved quickly through the Legislature to the governor’s desk was never going to be that bill, as worthy as those causes are. Two greater, inevitable forces were at work:
1. Tax conformity: This effort ensures that the state’s income tax code aligns as closely as possible to the newly revised federal tax code, so that Idahoans (and their CPAs) don’t have to account for two different income tax systems at tax time.
2. A cut to Idaho income taxes: This represents a multi-year effort by key GOP lawmakers to get top tax rates to less than 7 percent. That move offered modest tax cuts, but more crucially makes the state’s tax rates look better relative to other states as we compete to attract and retain businesses. With the state’s healthy economy and rising revenues, the must-pass tax-conformity bill was going to be the vehicle to accomplish this goal.
On their face, however, those two above goals conflicted: Conforming state tax code with the federal changes would have increased Idaho income taxes by as much as $97 million.
So even before the Legislature began, leaders set a related third goal: To hold Idaho taxpayers harmless when it came adjusting the state tax code. This was especially important for larger Idaho families with low and middle incomes. The federal tax changes removed individual and family deductions, opening those families up to state tax increases. And that came on top of Idaho’s income tax code, which already quickly gets even low-income Idahoans into the top tax bracket.
The bill now heading to the governor’s desk accomplishes Points 1 and 2 above, but falls short of holding families harmless. That’s why the Legislature still has work to do.
Traditionally, Idaho does fine-tune its tax code to reflect changes made at the federal level, a sensible practice that advances one of our board’s most important values regarding tax policy: simplicity. Income taxes are complicated enough without making Idahoans deal with two substantially different codes when it comes to determining taxable income.
HB 463, which passed both houses and is now before the governor, also takes one step to address the effect on families, by offering a child tax credit of $130 per child. But that is a half measure. Legislators can take an additional step of making the child credit refundable and by examining an earned income tax credit, an approach that likely will take until next year to accomplish.
Because the proposed child tax credit is nonrefundable, families that pay low or no taxes won’t get the full value of that credit, as the Idaho Center for Fiscal Policy notes, even though those families do pay a significant portion of their income in sales, property, gas and other taxes.
Fortunately, the center has laid out the options for Idaho policymakers, showing that a combination of an earned-income tax credit and refundable child tax credit offers the best combination of measures to aid low-income families while rewarding working families for work. There is plenty of data on which to start discussion and debate.
Conforming taxes and reducing rates generally benefits higher-income households, because they pay the most. But there’s no reason to penalize lower-income families while higher-income households and companies in and out of state enjoy an income-tax cut.
Taking the final step to ensure fairness for low- and middle-income families may be a multiple-session effort, as tax legislation often is. But meeting leaders’ stated obligations to do right by Idaho families demands they keep at it.
Unsigned editorials represent the opinions of the Statesman Editorial Board.