BOISE — The Idaho Legislature is considering a sweeping tax-cut bill that would slice income tax rates, with the top bracket dropping to 6.5%, and reduce Idaho’s sales tax rate from 6% to 5.3%
Rep. Steven Harris, R-Meridian, chair of the House Revenue & Taxation Committee, introduced the bill, which also would eliminate the grocery tax credit, but wouldn’t remove the Idaho sales tax from groceries.
Rep. Tammy Nichols, R-Middleton, noted that proposed bills have been submitted to the committee to remove the sales tax from groceries. “So will the grocery tax repeal be brought up as well?” she asked Harris.
“That’s an inappropriate question, in my opinion,” Harris responded. “But I will say that this, in my mind, is satisfying a removal of grocery tax on food.”
Harris said because cutting the sales tax rate from 6% to 5.3% would provide more total tax relief than removing the sales tax from groceries, “The 5.3 then overwhelms that.” He estimated the general fund cost of removing sales tax on groceries at $240 million, while calculating the general fund cost of his proposed drop in the sales tax rate at $260 million. Since the bill would eliminate the grocery tax credit, but wouldn’t remove the sales tax from groceries, the state general fund would gain $160 million from no longer providing the credit.
Rep. David Cannon, R-Blackfoot, asked Harris, “With the proposal to eliminate the grocery tax credit, how would it affect the lowest income earners in the state? … Would they lose more … than they gain in tax relief?”
Harris said some people benefit more from the credit, which provides an income tax credit of $100 per person per year for most Idahoans and $120 for those age 65 or older; while some would benefit more from the removal of sales tax on food or the lowering of the sales tax rate overall, depending on their spending habits. The grocery tax credit is refundable, meaning even those who owe less than $100 in state income taxes get the full credit.
“So folks who are better off with the credit, I suppose they’re going to feel that was taken away from them,” Harris said.
Harris’ complex proposal runs for 17 pages. In its Statement of Purpose, Harris estimates that the state general fund would save $107.7 million over two years as a result of the cuts, compared to forecasts. That’s because he factors in covering much of the cost of the cuts with one-time funds, including the more than $100 million balance that’s built up in Idaho’s “Tax Relief Fund,” which lawmakers created in 2019. That fund has been collecting all sales taxes paid on online sales since then, and just holding them. Harris’ bill also would tap that same fund into the future to help pay for the tax cuts.
Harris’ bill lists as co-sponsors House Speaker Scott Bedke, R-Oakley; House Majority Leader Mike Moyle, R-Star; and Senate Local Government & Taxation Committee Chair Jim Rice, R-Caldwell.
The proposal would reduce all income tax brackets and drop both the top individual bracket and the corporate income tax rate from 6.925% to 6.5% retroactive to Jan. 1.
The cuts in sales tax, income tax and corporate tax would cost the state about $265 million in fiscal year 2022 and $435 million in fiscal year 2023, according to the legislation. The sales tax cut would start Jan. 1, 2022, midway through the state’s fiscal year.