‘Oversent’ or ‘underspent’? Here are some better ways to return money to Idaho taxpayers
In testifying Tuesday in favor of a $600 million income tax cut and rebate, Miguel Legarreta, president of the Associated Taxpayers of Idaho, used the example of “the Spud family,” a family of two adult workers with two children, making $110,000 per year.
Under the proposed tax cut and rebate proposal, the Spud family would see a reduction in taxes from $4,238 to $3,276, a tax cut of about $988, or $582 from the rebate and $384 from the ongoing cut in the individual income tax rate.
What’s not to like, right?
As Rep. Mike Moyle, R-Star, said during Tuesday’s hearing on the bill in the House Revenue and Taxation Committee, taxpayers “oversent” money to the state in taxes.
But is it “oversent” or “underspent”?
If we stretch the analogy of the Spud family, let’s say the Spuds agree to pay the Shed family $4,238 to build them a packing shed for their potatoes. After he’s done building the shed, Joe Shed tells the Spud family that he overcharged them by $988 and gives them back that money.
The Spuds, of course, are pleased as punch. That is, until they go take a look at the shed. There are no doors. The Spuds ask Joe Shed about it, and he says, “Well, that would have cost you another $988.”
That’s kind of what the state of Idaho is doing with this tax cut and rebate. While the state wants to “give back” the money taxpayers “oversent,” in reality, the state “underspent” the money on basic government services, such as public education.
To further stretch the Spud family analogy, the Spuds were more than happy to pay the full $4,238 for the shed; they weren’t looking for their money back. They just wanted a complete shed.
The Democrats on the committee, Reps. John Ruchti of Pocatello and Lauren Necochea of Boise, found a surprisingly sympathetic ear in Republican Rep. Tammy Nichols of Middleton, who agreed that what she’s hearing most from her constituents is a need for property tax relief and a repeal of the sales tax on groceries.
“I’ve had zero people ask me for this type of income tax reduction,” Nichols said. “But I have had many people ask me in regards to property tax and grocery tax reform and repeal.”
Ruchti said he feared that passing a $600 million cut in revenue right off the bat like this takes that money off the table for other proposals, such as property tax relief or the grocery tax repeal.
Moyle said legislators can accomplish multiple objectives, including property tax relief as well as fund infrastructure and public education. He pointed out that the ongoing increase in education funds was more than the ongoing cuts in the individual income tax.
Point taken. But as our editorial board has pointed out, Idaho’s individual income tax is a relatively flat tax, with smaller increments at the bottom of the pay scale, and someone making $50,000 a year pays nearly the same rate as someone making $3 million a year. It would make more sense to make Idaho’s overall tax structure more progressive if the individual income tax were more graduated.
As with the tax cut, the rebate favors those who make a lot more money. The Spud family gets $582 in rebate. Again, who can complain about that? But if they live in a house that’s skyrocketed in value, that won’t pay for a quarter of their property tax. Meanwhile, someone making $1 million a year gets nearly $7,000 in a rebate.
While Moyle is correct that the state government doesn’t levy property taxes, there are things that the Legislature can do at the state level to alleviate property taxes, such as expanding the circuit breaker program to help the elderly, veterans and people with disabilities.
While some legislators remain opposed to completely repealing the sales tax on groceries, the Legislature could dramatically increase the tax credit, which would disproportionately — in a good way — benefit lower-income Idahoans.
Instead of a rebate, legislators could earmark $350 million for new school construction, which currently rests on the backs of local property taxpayers. Gov. Brad Little recognized the wisdom of paying down state building debt, for which he has targeted funds in a move of fiscal conservatism. Idaho legislators could similarly set up a fund that school districts could draw from to pay down bonds, thus alleviating those funds from the property tax bill and saving millions in interest costs.
Those at the top — those who probably need it the least — stand to gain the most from the tax cut and rebate plan, but targeted tax relief would help those who need it the most.
