The House Revenue and Taxation Committee has approved cutting Idaho’s top income tax bracket and Idaho’s corporate tax rate by two-tenths of a percent.
Rep. Mike Moyle, R-Star, sponsored a bill that would decrease Idaho’s top income tax rate and the state’s corporate tax rate from 7.4 percent to 7.2 percent. The bill would also exempt the first $750 of taxable household income in order to offer relief to all income tax brackets.
Two organizations testified in favor of the bill and two spoke against it at public testimony Jan. 31. The committee then passed the bill along a party line vote.
“Some will say it is not enough and some will say it is too much,” Moyle said. “There will be a lot of different excuses, but the truth is Idaho taxes are out of whack.”
If the Legislature approves the bill, it would reduce state revenue by more than $50 million. Debate on whether the bill should be passed centered on whether the state could afford to lose so much money.
“Let’s cut to the chase,” said Rep. Stephen Hartgen, R-Twin Falls. “The economy is doing pretty darn well. If this is not the time for a significant tax decrease then I don’t know when it will be.”
Hartgen and Rep. Ronald Nate, R-Rexburg, said Idaho’s growing economy is leading to lower unemployment, increased jobs and higher state revenue making a tax cut affordable.
But opponents of the bill disagreed and cited problems around the state that the Legislature can’t address because it doesn’t have enough money.
“It seems that the Legislature has a hard time funding needed services such as transportation repairs and this bill would make that even harder,” said Donna Yule, executive director of the Idaho Public Employees Association. “I was also in the CEC (Change in Employee Compensation Committee) meetings where legislators said we can’t pay our state employees enough to compete with nearby states or the private market because we don’t have the money.”
Elinor Chehey, community leader at the League of Women Voters of Idaho, and Rep. John Gannon, D- Boise, added that school districts have had to raise more than $1 billion in bonds and supplemental levies in order to pay for schools around the state.
The two said it doesn’t make sense to cut general fund revenue when the state needs to spend more on education.
“I’m surprised to hear that we consider ourselves a conservative state and not a responsible one,” said Rep. Mathew Erpelding, D-Boise. “If we can’t afford to maintain infrastructure for transportation and other pressing needs then this seems shortsighted.
“Many of you are saying the economy is doing well and we should cut taxes, but during the recession I remember people saying that the economy was poor and we should cut taxes,” he said. “What that says to me is the ‘right time’ is whenever it is fun to say.”
There was also debate about whether the state needs to cut its tax rates in order to be more competitive with neighboring states.
John Watts, spokesman for the Idaho Chamber Alliance, said cutting the corporate income tax rate would make Idaho more appealing to businesses considering a move to the area. Neither Nevada or Washington tax income, Utah taxes it as 4 percent, and Montana taxes it at 6.9 percent, he said.
“I think it is one of the best things we can do to bring businesses back to the state which is why the chambers support it,” Moyle said. “Even the chamber in Boise supports it.”
But a study released by the Idaho State Tax Commission December 22 compared what citizens across the United States pay in taxes and concluded that Idaho’s tax burden ranks 48th nationally and 11th out of 11 western states.
Similarly, the Second Annual Idaho Public Policy Survey, conducted by the School of Public Service at Boise State University in December, found that most Idahoans, 65 percent, believe taxes in Idaho are just right compared to 22.6 percent who said taxes were too high.
“Most Idahoans want to see the money spent elsewhere in the state,” Yule said. “Since we can’t pay our state employees adequately or repair our roads it seems like a waste of part of the revenue stream to give tax cuts to those who don’t want it.”
The findings of the Public Policy Survey are in line with survey results released by the think tank Idaho 2020 in January 2016. That survey found that 60 percent of Idahoans are happy with their tax rates. Survey results that American Strategies released in November 2015 that said 70 percent of Idahoans are happy with their tax rates.
Moyle dismissed the Public Policy Survey results, saying many of the respondents that said they are happy with their tax rate are “uneducated” about the matter.
“The apathetic masses – they don’t realize that they could take their check to a neighboring state and it would be cheaper for them,” Moyle said.
The president of the Associated Taxpayers of Idaho, Miguel Legarreta, testified in favor of the bill. He said it would relieve the tax burden of the average Idaho family, with two working members, by $77.
The committee approved the bill on a 14 to two vote and it will now go before the House of Representatives for a vote.
Who benefits from the tax cut
The Idaho Center for Fiscal Policy analyzed Rep. Mike Moyle’s income tax bill to see how much money Idaho citizens would save. It found that 69 percent of households would get at least a minor benefit and 31 percent would see no benefit.
The top 20 percent of earners, those earning more than $92,000 a year, would receive 67 percent of the monetary benefit, according to the center.
Idahoans who earn less than $92,000 a year would save $4 to $67 a year and those who earn more will save $134 to more than $1,500.
Previous tax cut proposals
Rep. Mike Moyle, R-Star, said tax cut proposals have passed the House of Representatives, but stalled in the Senate each of the last three years.
The latest proposal has a better chance of passing, he said.
“I want to do something this year,” Moyle said. “Each of the last three years, we have sent them a bill, but it has gotten held up by the committee chairman or whatever happens over there, but if you listen to the Senate Pro Tem this year they sound interested in this.”
Not every elected official is eager to cut taxes this year. Lt. Gov. Brad Little, who presides over the Senate, said in November that he would be more comfortable discussing tax cuts after seeing if changes are made at the federal level.
“There has been a lot of discussion about personal and corporate tax rates, but what I told legislators is we need to be cognizant of what Congress does because we don’t know how their tax cuts will affect our revenue,” Little said.
Moyle said part of the appeal of this year’s bill is that it is simpler than past iterations. Prior bills attempted to change income tax rates as well as grant sales tax exemptions for groceries.
“The last time we went to the Senate I thought we had a chance to get it passed, but it wasn’t ever heard,” Moyle said. “Since that day some of the leadership over there have said they have no intent to go there (to cut grocery taxes).”