While conservatives are praising the recently finished session of the Idaho Legislature for holding the line on tax increases, one proposed income tax cut didn’t make it very far with lawmakers. A plan to flatten the personal and corporate income tax rates during a 10-year span received a hearing in a House committee on the last day of the session, but didn’t move forward. One House Republican leader said the plan would have stalled in the Senate.
The plan, which was discussed before the legislative session started in January, would drop income tax rates for people and businesses down to a flat 4.9 percent. The highest tax rates are currently 7.8 percent for the corporate income tax and 7.6 percent for the personal income tax. In the House, 28 Republicans signed on to support the tax cut, and three GOP senators also formally backed the plan.
“The issue’s not going away,” said House Majority Leader Mike Moyle, R-Star, who sponsored the income tax reduction with Rep. Marv Hagedorn, R-Meridian. Moyle said the goal of lower income taxes is to create jobs by luring businesses to Idaho. “We’ve got to have a tax structure that’s conducive to coming,” Moyle said. “This is a job development tool.” Moyle said business groups have told him that companies looking to relocate to another state look at the corporate tax rate before anything else when considering a move, even before a skilled workers. “You can bring the educated workforce with you,” he said.
Moyle said he could have gotten the votes needed to pass the income tax cut out of the House, but that it would have failed in the Senate Local Government and Taxation Committee. That committee, chaired by Sen. Brent Hill, R-Rexburg, voted down several other tax breaks approved by the House, including a tax credit for new jobs and a tax break for airplane repair parts. “We couldn’t get a deal,” Moyle said about negotiations with senators.
Hill told IdahoReporter.com that his committee is committed to lowering taxes for everyone, rather than issuing tax breaks to specific industries. He also said that this session, the Senate committee tried to avoid changes to tax policy that would affect the state budget.
The income tax cuts proposed by Moyle could carry a heavy price tag to state government, assuming that the drop in tax rates doesn’t spur business growth that would swell the tax base. The legislation says it could cost about $37 million a year in lost taxes to the state general fund. However, if the state economy grows as a result of those tax reductions, more revenues could come in to the government. The tax breaks also wouldn’t have started until 2012, so wouldn’t impact the budgets set by lawmakers this session.
Idaho currently has a larger corporate income tax than neighboring states, though its balanced tax structure, including income, sales, and property tax, complicate comparisons with other states. For example, Washington has no income tax and Oregon has no sales tax, while Idaho has both.