Now that the Idaho House of Representatives has passed Gov. Butch Otter’s tax relief plan, I’ll let you in on a little secret: While all of the Republicans in the chamber voted for it, many don’t like it. Why? Though the bill cuts income tax rates to less than seven percent, the measure also complicates Idaho’s efforts to lower the income tax even more in the future. That’s because the legislation would also add a new costly child tax credit to the state’s already complicated tax code.
A state child tax credit is a bit of a tax policy anomaly among states. Only a handful offer a tax credit to families with children. Idaho’s tax credit would equal $130 for every youngster at a first-year cost of about $42 million. The child tax credit is the Otter administration’s answer to the federal government’s tax changes signed into law by President Trump. In short, those federal changes result in lower taxes for just about everyone. However, the elimination of some federal tax law exemptions in favor of bigger tax credits and a higher standard deduction is expected to increase the tax burden on families with more than three children.
State legislators are still trying to come to terms with those impacts, but they’re not sure a new tax credit is the answer, and a majority on the House Revenue and Taxation Committee quietly groused about its inclusion in Idaho’s tax reduction plan. Tax credits certainly help those who receive the benefit. Those who don’t benefit wind up paying a higher effective tax rate. Moreover, tax credits also carry a price tag that makes it harder to lower the income tax rates borne by all. House members hoped to kill two birds with one stone: eliminate the sales tax on groceries and its evil twin, the grocery tax credit. That, they said, would help big families and clean up the state tax code. That, however, wasn’t the deal that was offered. The House, voting on the overall package, rejected a proposal to add the grocery tax proposal out of fear the governor would veto it.
Each legislator quoted below spoke to me on the condition of anonymity so that they could be candid in their analysis of the bill without fear of reprisal. In short, a majority of the members of the committee that advanced the bill to the House floor weren’t sold on the new child tax credit.
“I don’t know how that ended up in there,” one legislator complained.
“It’s an entitlement program that we’ve created,” said another.
“It’s definitely not the best we could do,” commented a third.
“I supported the bill more on the basis of who was sponsoring it than I did on what may or may not be the best tax policy per se,” another lawmaker told me. The measure is backed by the governor and the leadership of both the House and Senate.
The Idaho child tax credit is slated to expire when the federal tax code changes expire at the end of 2025. At that point, state lawmakers would face yet another set of tough questions about how to minimize the damage to Idaho families, who would by then have grown used to receiving the child tax credit. You can almost hear the debate--seven years in the future: “If we allow the child tax credit to expire, it will mean higher taxes for most Idaho tax-paying families.”
The tax relief bill that passed the Idaho House is good because it lowers Idaho’s income tax rates, which is causing lawmakers to celebrate its passage. But the creation of a new tax credit—though it might ease the burden on bigger families—is a big negative for the state’s ongoing efforts to attract new businesses because Idaho still retains the distinction of having ultra-high taxes compared to its neighbors. That won’t change anytime soon because of the creation of the child tax credit. Now, it’s up to state senators to decide whether they’re OK with that.