Measure calling for $389 million in tax cuts makes its way out of committee
BOISE — Idaho tax policy hit the fast track Tuesday, as a $389 million tax cut proposal flew out of committee on a party-line vote and was nearly taken up on the House floor.
House Bill 332, which was introduced Friday, is co-sponsored by the entire House Republican leadership team. It provides an estimated $169 million in permanent tax relief, plus a one-time tax rebate of $220 million.
The legislation lowers Idaho’s top corporate and individual tax brackets from 6.925 percent to 6.5 percent. The other six individual tax brackets would be reduced as well.
Full-time Idaho residents who file a 2020 tax return would also receive a tax rebate of $50 per person, or 9 percent of their 2019 tax liability, whichever is greater.
The ongoing cost of the bill is $169 million. Of that, $110 million would come from the tax relief fund, which collects sales tax revenue from online purchases. Another $59 million comes out of the general fund, which pays for public schools and all other general government expenses.
The one-time rebate is paid for with a combination of tax relief funds that accumulated over the past 18 months, plus surplus general fund revenues from the current fiscal year.
The House Revenue and Taxation Committee gave the legislation a favorable recommendation Tuesday morning, following a brief public hearing.
Garden City Mayor John Evans, representing the Association of Idaho Cities, opposed the measure. He noted that lawmakers originally agreed to give cities and counties a portion of online sales tax revenues a few years ago, when they set up the tax relief fund.
HB 332, however, reneges on that promise and keeps all the money for the state.
“This would continue to put cities in a position where we’re more reliant on property tax dollars — something we’re trying to get away from,” Evans said. “I hope we can start looking at things more holistically, so we aren’t giving tax relief in one area and adding to the burden in others.”
House Majority Leader Mike Moyle, R-Star, pointed out that a new transportation funding bill making its way through the Legislature will provide local governments with more funding than they would have received from the sales tax deal.
“If you look at the two bills, the cities are going to get twice as much money,” he said. “It’s a good deal. I also hope cities start living within their means.”
Kathy Dawes, of Moscow, who testified remotely, said lawmakers shouldn’t be considering tax cuts until they fulfill their constitutional obligation to fully fund public schools.
“We all say we want our kids to have the same opportunities as we had ourselves, but we’re cutting music classes, art, foreign languages, and we’re last in the nation in per-pupil spending,” she said. “We also have great needs in terms of infrastructure — our roads, bridges and broadband.”
The Idaho Association of Commerce and Industry spoke in favor of the legislation, saying it’s a “well-crafted” effort to reduce income tax rates and make Idaho more competitive with surrounding states.
The committee spent only a few minutes discussing the bill before advancing it on a party-line voice vote. The House was set to debate the measure during its afternoon session, until a technical glitch forced the representatives to adjourn for the day.
Rep. Lauren Necochea, D-Boise, said the proposal simply exacerbates income inequality in Idaho.
“A family that earns $1 million would get 30 times the tax rebate as a family of four that makes $25,000,” she said. “And when it comes to the permanent tax cut, the difference is even more dramatic — it’s about 320 times more.”
Necochea also noted that the bill ignores calls from around the state for property tax relief.
“This isn’t the kind of tax relief our constituents are asking for,” she said. “I think we’re mismatched with what the voters of Idaho are begging us to do.”
Alejandra Cerna Rios, director of the Idaho Center for Fiscal Policy, suggested the legislation could also threaten the next round of federal stimulus funds.
A provision in the American Rescue Plan Act prohibits states from using any of the funds for tax relief. Rios questioned whether HB 332 would violate that provision, resulting in a “clawback” of $389 million out of the $1.2 billion the state expects to receive through the act.
“The United States Treasury hasn’t issued guidelines on how these cases will be handled,” she said in a news release. “Other states have hit pause on cuts until they learn more.”
Idaho Sens. Mike Crapo and Jim Risch introduced legislation Monday that would remove the tax cut restriction from the American Rescue Plan.
“If a state like Idaho wants to provide tax relief in the interest of economic recovery, and to help people return to earning their livelihoods, the American Rescue Plan says it will be financially punished by the federal government,” Crapo said in a news release. “This infringes on states’ authority to design their own fiscal policies, and invites partisan politics into federal and state relations.”