BOISE — The Idaho Senate passed a package of income tax cuts Thursday, putting to an end debate over what form tax cuts will take this year. Since the cuts earlier passed the House, they now only require Gov. C.L. “Butch” Otter’s signature to become law.
While the bill will mean tax cuts for many people, it is expected to result in higher state income taxes for large families.
Senate Pro Tem Brent Hill, R-Rexburg, a tax accountant, made the case for the bill on the Senate floor.
“Tax policy is exciting,” Hill said. “It affects every household in the state. It affects families. It affects businesses. It affects our ability to compete for businesses.”
Income tax changes have been complicated this year, largely due to a sweeping set of tax changes passed by Republicans on the federal level. The reason those income taxes affect Idaho state income taxes is that Idaho uses the federal definition of taxable income as the basis for its own taxes.
While changes in federal rates and tax credits have no automatic effect in Idaho, changes to deductions do. The Republican tax plan raised the standard deduction and eliminated certain other deductions, changing dramatically what counts as taxable income. Without changes to state rates, those changes would result in a sizable state income tax hike.
The bill lowers all state personal and corporate income taxes by just under 0.475 percentage points. It also creates a new $130 state child tax credit to offset the federal elimination of child tax deductions.
The cuts are commonly described as $200 million in total tax reductions, though it’s arguable whether that figure is misleading. That figure includes the tax hikes that would occur from conforming to the new federal definition of taxable income. The reduction in general fund revenue resulting from the cuts, another possible measure of the size of the cut, is just over $100 million.
The projected result is a tax cut for most Idahoans, though those with large families (three or more children) could see a state tax hike, depending on their income level.
Sen. Jim Rice, R-Caldwell, said he expects the economic benefits of tax cuts will offset tax hikes on large families. Sen. Steve Vick, R-Dalton Gardens, said he initially had reservations about the bill but had come to support it.
“I’m feeling pretty good about voting for it now,” Vick said.
The bill saw opposition from Democrats and a few Republicans.
The most vehement Republican opposition came from Sen. Dan Johnson, R-Lewiston, who serves as chairman of the Senate Local Government and Taxation Committee. He raised a number of objections. The new state child tax credit, he pointed out, ends at 16, even though most children don’t leave their parents’ household until 18. And large families will wind up paying more in taxes, he said.
“It helps some families,” he said. “It doesn’t help all families.”
Sen. Jeff Siddoway, R-Terreton, is chairman of the Senate State Affairs Committee and former chairman of the tax committee. He also opposed the bill, saying only a few members of the Senate had been allowed to give input on it.
“I think we can put together a much better tax break,” he said.
Several Democrats argued the cuts were too large, saying the state would be better served by devoting more funds to repairing aging roads and bridges and improving the education system.
Passage of the bill removes one of the biggest hurdles in the way of bringing the legislative session to a close.
Last year, the Legislature passed legislation eliminating the sales tax on groceries, a tax cut that saw wide support across the ideological spectrum. But Otter vetoed the bill, saying grocery sales taxes were among the most recession-proof sources of state income.
Early in the session, there were rumblings that the income tax cuts could come into conflict with some lawmakers’ desires to push for a second try at the grocery tax elimination.
With passage of the income tax cuts, that debate is resolved for now.
Reporter Bryan Clark can be reached at 208-542-6751.