BOISE — Voting along straight party lines, the Idaho House on Wednesday passed a massive tax-cut bill to grant $389 million in both one-time and permanent income tax relief to individual and corporate income tax filers.
“This is a rebate – this is your money coming back,” Rep. Steven Harris, R-Meridian, the House tax chair and lead sponsor of HB 332, told the House. He noted that Idaho’s been piling up a giant budget surplus. “This seems to be the fairest way to give the funds back to the to the taxpayers as best we can,” Harris said.
Minority Democrats sharply disputed that, noting that lower- and middle-income Idahoans would get little from the proposal, but the wealthiest would see a big windfall. “It is incredibly lopsided,” said Rep. Lauren Necochea, D-Boise.
She calculated that a family of four with an income of $25,000 would get $13 from the tax cut and $200 from a one-time rebate that’s set at $50 per person or 9% of 2019 taxes paid, whichever is higher. That’d bring that family’s total benefit to $213. A family of four earning $1 million a year would get $10,217.
Rep. Brent Crane, R-Nampa, countered that low-income Idahoans pay little or no state income tax. “If folks aren’t paying income taxes in the lowest bracket, yet they’re getting $213, one could argue that that potentially is not fair,” he said.
Rep. Jason Monks, R-Meridian, agreed. “Tax relief by definition is for those who pay taxes,” he said. “You can’t provide tax relief to those who don’t pay taxes.”
Democratic representatives said lower-income Idahoans pay sales and property taxes, and that’s where the relief is needed. They also warned that the giant tax cut would drain away state general funds needed now and in the future for schools, roads, health care and other needs.
Rep. Steve Berch, D-Boise, said, “The money associated with this tax relief is denied to the citizens of this state, which includes funding the vital services of this state and its functions like education. … When we don’t adequately fund education, and take money that we have available and spend it elsewhere, that pushes that cost onto property tax increases.”
Rep. Megan Blanksma, R-Hammett, repeatedly objected to Berch’s debate, saying he was bringing up property taxes and the bill was only about income taxes. Berch countered, “You have to connect the dots.”
House Minority Leader Ilana Rubel, D-Boise, said, “If you’re going to be taking that kind of money out of the general fund … why in the world wouldn’t you make some effort to make sure that the money goes to the people who need it?”
Rep. Colin Nash, D-Boise, said, “I’m worried this bill may have gotten to us a few weeks too late.” He noted that the newly passed federal COVID-19 relief act penalizes states that make law changes cutting taxes after March 3, 2021 by a “clawback” of their federal relief funds, which could cost the state hundreds of millions otherwise available for water projects or broadband infrastructure. “The responsible thing to do would be to hold off a few more months,” he said.
Rep. Greg Chaney, R-Caldwell, cited a law review article calling the federal relief bill the “biggest attempt by the federal government to interfere in state tax policy in the history of the United States.”
“To the degree they follow through, they have handed us the best test case in the last 100 years to take to the Supreme Court to fight the practice of fiscal federalism and to push back on how those strings might be attached and enforced upon us,” he said. “I think that is a noble goal, even if it comes to fruition. … If that is the decision of the United States Department of Treasury, then game on.”
Several representatives, including Chaney, appeared to confuse the $11,760 threshold for taxable income that puts a taxpayer into Idaho’s top state income tax bracket with gross income. “Eleven thousand a year is ‘wealthy and well-connected,’” Chaney told the House.
Rep. Ben Adams, R-Nampa, thanked Chaney “for telling me that I’m now an affluent member of society.”
He said, “Of all the versions of tax relief that we’ve seen this year, this is the most clean-cut … and it gets the money right back to those who have paid income taxes.”
Rep. Codi Galloway, R-Boise, said her 18-year-old son got a job last year “and he made on his W-2 over $11,000, so he’s in the top tax bracket now.”
However, Idaho has a standard deduction, according to state Tax Commission forms, of $12,400 for an individual or $24,800 for a married couple filing jointly. Other deductions may also apply. But someone who earned $11,760 last year would subtract the $12,400 and get a negative — they’d owe no taxes.
To make it into Idaho’s top tax bracket, they’d have to make a minimum of $12,400 plus $11,760, or $24,160.
For a married couple, the minimum taxable income for Idaho’s highest tax bracket is $23,520, but the standard deduction is $24,800. That means a married couple, filing jointly, would have to make, at a minimum, $48,320 to be in Idaho’s highest tax bracket.
That’s still low. Idaho’s top tax bracket takes in a very wide range of incomes, from that individual at just over $24,000 to billionaires with multimillion-dollar annual earnings, all paying at the same rate.
HB 332 would lower tax rates for all individual income tax brackets, and also lower the corporate income tax rate from 6.925% to 6.5%, matching the drop for the top rate for individuals.
House Majority Leader Mike Moyle, R-Star, who co-sponsored the bill along with every member of House GOP leadership, said, “It’s a fair bill. Everybody gets relief. … As long as they file a return, they get a check back. This is the best way to give back all the extra money we have now and do it in an equitable way.”
To become law, the bill still would need to clear a Senate committee, pass the full Senate, and receive the governor’s signature.
After the vote, Rubel warned that the bill would endanger all future efforts to address needs ranging from education to infrastructure by permanently giving away a big chunk of the state’s general fund revenue. “We will be paying the price for this reckless policy for generations if this bill goes forward,” she said.