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Massive Idaho tax cut, education bill heads to House

Idaho inflation Special Session
Posted at 1:17 PM, Sep 01, 2022
and last updated 2022-09-01 15:17:56-04

BOISE, Idaho — A massive tax cut and education spending bill made possible by the state’s projected $2 billion budget surplus is moving at lightning speed through the Legislature and headed to the full House on Thursday.

The House Revenue and Taxation Committee unanimously approved the bill that has a $410 million annual increase through sales taxes for education as well as a $500 million income tax rebate this year and an ongoing $150 million income and corporate tax cut by creating a 5.8% flat tax.

“This is really a step in the right direction,” Superintendent of Public Instruction Sherri Ybarra told lawmakers, noting it will help in variety of ways, including with a teacher shortage in the state.

Republican Gov. Brad Little last week called the part-time Legislature back to Boise due to what he said was high inflation, currently at 8.5%, harming taxpayers and the education system.

The proposed legislation has enough co-sponsors in the 70-member House and 35-member Senate to pass, and is widely expected to make it to the governor's desk for his signature late Thursday.

The one-time income tax rebates of $500 million amount to 10% of taxes paid in 2020, with a minimum rebate that Democrats fought for of $300 for individual taxpayers and $600 for those filing jointly. The bill requires the Idaho State Tax Commission, to the extent possible, to issue the rebates this fiscal year, which ends June 30. But lawmakers have said the rebates would likely happen this calendar year.

The ongoing tax cut of more than $150 million involves creating the corporate and individual flat tax rate of 5.8% starting next year. The corporate tax rate is currently 6%, the same rate for the state’s highest income bracket. Under the bill, the first $2,500 of income for individuals and $5,000 for people filing jointly would be exempt from taxes.

The flat tax “has been a dream for a lot of folks for a long time,” said Republican Rep. Steven Harris. “And we do that in a way that every tax payer is better off. From the poor to the rich, everyone is better off.”

The bill bolsters K-12 public schools and post-secondary education with $410 million annually from sales taxes starting next year. Of the $410 million, $330 million is proposed for K-12 and $80 million for post-secondary education.

An initial version made public last week included an annual increase of 3% in the education spending, but that troubled some Republican lawmakers and it was cut from the bill introduced on Thursday. Democratic Rep. Brooke Green said losing that was disappointing, but she expected the bill to still pass in the House.

Fred Birnbaum of the Idaho Freedom Foundation, a libertarian group with a history of opposing spending money on public education, asked the committee to reject the legislation.

“It basically accepts the notion that we have somehow underfunded schools,” he told lawmakers.

But some education officials who testified said they couldn't compete with wages offered by fast food restaurants.

The state’s business leaders have complained that Idaho’s education system is falling behind, hurting efforts to attract new companies and retain existing ones. Idaho has ranked at or near the bottom of per-pupil spending for years.

“We have been on the floor for a long time, and it takes a while to get off that floor so we’re no longer last,” said Alex LaBeau, president of the Idaho Association of Commerce and Industry.

The House hearing on Thursday included members of the Senate Local Government and Taxation Committee, which listened to public testimony but didn’t take action because the bill is not officially in the Senate yet. Senators left before the House committee debated and voted on the bill.

If the bill passes the House, it will then head to the Senate for consideration.