Idaho’s largest-ever tax cut cleared the House on Thursday and headed to the Senate.
The House voted 57-13 with no Democratic support to approve the $600 million cut that includes a one-time $350 million in rebates and $250 million in permanent income tax reductions going forward for people and businesses.
Backers said the tax cuts return money to the people who paid it.
“Today, we’ve gotten a good start and gotten an important win for the people of Idaho — putting their taxpayer money directly back in their pockets, where it belongs,” said Republican Rep. Steven Harris, one of the bill’s sponsors, in a statement after the vote.
Opponents said the cuts mostly benefit the wealthy at the expense of essential government services such as education. Money the state collects from online sales taxes will go toward part of the income tax rebate.
“This bill literally takes from the poor and gives to the rich at a time when the state has yet to allocate a single penny in the budget toward education, infrastructure or other vital needs,” said Democratic House Minority Leader Ilana Rubel in a statement after the vote. “This is not how responsible government should work.”
Gov. Brad Little, who supports the tax-relief package, is also pushing for a record $300 million increase in education spending and $200 million for infrastructure.
But the tax-relief bill is the first bill passed by the House this year, and several lawmakers noted spending bills on education and infrastructure had yet to be discussed and are weeks away from being voted on in the House.
“My biggest concern is that right out of the gate, we’re taking $600 million off the table,” said Democratic Rep. James Ruchti during debate on the House floor. He said that could have consequences if lawmakers later decide they want to use the money “toward property tax relief or grocery tax credit in a way that’s more consistent with what Idaho working families want.”
Rep. Fred Wood, the only Republican to vote against the bill, noted that the state’s projected $1.9 billion surplus that’s paying for part of the tax-relief package wasn’t in the bank yet, and much could happen before the fiscal year ends this summer.
“We’re about to spend $600 million today, part of it ongoing, on a projection,” he said. “We don’t have $1.9 billion yet. We’ve got our biggest (revenue) months to come in and we could still wind up short a couple, $300 million.”
He also said the permanent individual and corporate income tax cuts will reduce revenue that could be needed for infrastructure expenses to deal with rapid population growth. Idaho is among the nation’s fastest-growing states.
The $350 million tax rebate includes 12% back for 2020 filers, or $75 per taxpayer and dependent, whichever is greater.
“If you’ve been filing (income taxes), you’re going to get your $75 for you, your spouse and your children,” said Republican House Majority Leader Mike Moyle, a bill sponsor. “It helps alleviate the concerns for them. So, for a family of four, that’s $300, and right now that’s a lot of money to a lot of people.”
The permanent tax cuts reduce income tax rates, including dropping the top rate from 6.5% to 6%. People making more than about $8,000 and couples making more than about $16,000 are in the top tax bracket in Idaho, meaning Idaho income tax is essentially a flat tax with most paying the same rate.
Corporate income taxes under the bill would also be cut from 6.5% to 6%. Backers of that cut said it would keep Idaho competitive with surrounding states in attracting businesses.
The individual and corporate tax cuts would be retroactive to Jan. 1.
An analysis by the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan tax policy organization based in Washington, D.C., found that the total tax benefits of the package for a person in the top 1% of Idaho income earners making $557,000 or more annually would benefit by $13,254.
That’s more, the institute found, than the combined tax relief amount of income for persons in six lower-income categories.
The institute said that earners in the bottom 20% making less than $26,000 would benefit by $77. Those in the next 20% making up to $44,000 would benefit by $127, while those making up to $71,000 would get $251 and those making up to $113,000 would get $534.
People making from $113,000 to $234,000 would get $1,142 and those making $234,000 to $557,000 would get $2,722.
“You’ve seen the data; you know how lopsided this is,” said Democratic Rep. Lauren Necochea in arguing against the bill on the House floor. She noted that lower-income earners typically spend a greater portion of their money on Idaho taxes, which also include sales and property taxes.
“That we tax Idahoans living paycheck to paycheck deeper into poverty is morally troubling, but also just foolhardy,” she said.