A large income tax cut is one step closer to the Governor’s desk.
On Thursday, the Senate Local Government and Taxation gave the green light for a $389 million income tax cut carried by Rep. Steven Harris, R-Meridian. The bill will provide $169.4 million in on-going tax relief in the years ahead and a $220 million, one-time rebate on sales and income tax revenue.
Debate over effects of bill
Harris said this aims to return some of the state’s surplus funds to Idahoans and he doesn’t intend for it to be portrayed as a COVID-19 relief check.
“This isn’t a subsidy, this isn’t a shift,” he said. “This is intended to be a rebate. We took too much of your money and we’re giving some of it back to you. This was the most straightforward, most up and up way of doing that to return the money the state has gathered through income tax.”
If passed, HB 332 would cut income tax rates across the board for all brackets and give anyone who paid state taxes the past two years a rebate. The cash back would be $50 per household member or 9% of income taxes paid, whichever is greater.
The legislation has dozens of co-sponsors, all Republicans, who say the tax cut will help spur Idaho’s economy by returning cash to the hands of people to be spent and will provide necessary tax relief. But, Democrats argue the cut disproportionately benefits corporations and wealthy Idahoans and doesn’t provide enough help to low-income earners who are struggling the most.
The Senate Local Government Committee forwarded the legislation, but several legislators had concerns on details and sent it to the amending order to be changed further before it would be voted on by the entire body.
Will it hit local governments?
Sen. Steve Vick, R-Dalton Gardens, said he hoped to see a reduction in the number of tax brackets Idaho has in the final bill. Sen. Todd Lakey, R-Nampa, hoped for a change to the bill’s impact on the distribution of sales tax revenue to local governments.
The bulk of the funds to pay for the tax cut would come from an account the Idaho Legislature created in 2019 to set aside to hold proceeds from internet sales, which has been left untouched since its creation. In the past few years, it amassed a balance of $180 million. There is currently a “sunset clause” preventing those funds being distributed to cities and counties along with the rest of sales tax revenue in the state until 2024.
Lakey objected to the language in HB 332 removing this sunset clause and the move to direct the proceeds from internet sales to fund tax cuts instead of local governments.
“That was a very specific understanding in the Senate, that was an amendment that I was part of, among others to, at the end of the day, treat sales tax as sales tax,” he said. “And the compromise there was to include that sunset. And then after the sunset, those provisions come into play and it goes into the formula like anything else. I think for myself, that sunset needs to remain in place.”
Sen. Ali Rabe, D-Boise, voted to send the bill to be changed on the floor of the senate, but she told the committee she is likely to oppose it on the floor because the funds should be used for needs around the state. Rabe referenced the $200 million in supplemental levies to support school districts around the state, which are paid for by property taxpayers.
“I am concerned about the ongoing affordability considering we are not funding basic needs in our state,” she said.