Credit: Kyle Pfannenstiel
Otter tax plan: Sen. President Pro Tempore Brent Hill presenting HB 463 before the Senate Local Government and Taxation Committee on Feb. 21.
As of Monday, February 26, 2018
BOISE An Idaho Senate panel advanced Gov. C.L. “Butch” Otter’s $200 million tax cut bill to the Senate floor on a 5-4 vote.
HB 463 conforms to federal definitions of income, which is expected to increase taxes by $97.4 million. Overall the bill is expected to cut taxes by reducing the income tax rates for individuals and businesses by .475 percent. It also includes a $130 non-refundable tax-credit, in efforts to offset the elimination of the dependent exemption. The state changes to income taxes are estimated to reduce taxes by roughly $200 million, resulting in a net tax reduction of $104.5 million.
Much of the debate focused on how the bill makes sweeping changes to tax code. Lawmakers agreed that the conformity portion, which result in a tax increase, is complicated. What they didn’t agree on is what conformity and cuts to income tax rates combined would do, and if they it should be adopted together.
Sen. Dan Johnson, R-Lewiston, Senate Local Government and Taxation Committee Chair, said he is driven by efforts to make “good tax policy.”
“What we do here is we make legislation. How we make legislation is a matter of process. But why we make legislation is to serve the citizens of Idaho,” Johnson said to the committee. “I believe they want us… to decide on tax policy that is simple to understand, transparent, with careful analysis and revenue estimates fully explained, neutral, without picking winners and losers and stable by avoiding complicated changes in tax code. I don’t think HB 463 gets us there.”
Johnson also noted that the Idaho Center for Fiscal Policy’s (ICFP) estimates for revenue changes from conformity range from $7 million to $97.4 million, which he said tells him, “I don’t really know what the conformity really causes.”
Others said passing both at the same time are critical.
“If you were to divide the question, what you’ve got is a bill that’s $97 million of additional income to the state and then you’ve got a bill over here that’s a $200 million tax cut,” said Sen. President Pro Tempore Brent Hill, R-Rexburg, one of the bill’s many sponsors. “Quite frankly, as much as I trust my colleagues, I would be very reluctant to vote on a (nearly) $100 million tax increase, not knowing what we’re going to end up with on the $200 million tax cut.”
Another key area of debate focused on the impact HB 463 would have on families. Much of it comes about because of the elimination of the dependent exemption, which the Idaho child tax credit was created because of. The child tax credit already existed on the federal level, which was how Congress offset the change, according to Hill.
The ICFP estimated “the combined effect of full conformity and tax changes…. on all households would be a $69 tax cut, on average, for the middle 20 percent (income earning) of Idaho households and a tax cut exceeding $8,700 for the top 1 percent.”
Sen. Grant Burgoyne, D-Boise called the legislation a “tax shift,” referencing the center’s estimate of large portions of the tax cut going to the top one percent of income earning households, with at least $459,000 annual income.
Sen. Jim Rice, R-Caldwell, was wary of the estimates.
“The fact is that if you make enough you will receive a higher dollar amount in reduction,” Rice said. “But, there’s an old saying attributed to Mark Twain, that says there’s three kinds of lies: lies, damn lies and statistics… You can use statistics to back up any position you want, if you cut it right.”
Chairperson Johnson and Sen. Jeff Siddoway, R-Terreton, opposed, along with Democratic Sens. Burgoyne and Mark Nye of Pocatello.
The bill must now clear its last legislative hurdle on the Senate floor before getting to the governor’s desk. The legislation has 13 sponsors in the Senate, all Republican, and is endorsed by Otter. It passed the House in a straight-party line 59-11 vote two weeks ago.
– Kyle Pfannenstiel covers the 2018 Idaho Legislature for the University of Idaho McClure Center for Public Policy Research.