It has been several months since the Division of Financial Management released the latest data on how much taxes the state has collected. The agency isn’t hiding the data; it was just a function of getting the state’s new Luna software to sync with the Tax Commission. We don’t have all of the numbers because product taxes and miscellaneous revenues are not published yet for things like taxes from tobacco and alcohol, and fees on insurance premiums. However, we have data on the three largest categories: individual and corporate income taxes as well as sales taxes for the first quarter of the budget year that started July 1. And these categories are enough to provide a revenue picture.
Despite several years of tax cuts, Idaho is still pulling in massive amounts of tax revenue. As such, lawmakers should be prepared to consider additional tax cuts when they arrive in Boise in January.
From tax years 2018 to 2023, the top individual and corporate income tax rates dropped from 7.4% to a flat 5.8%, a nearly 22% rate reduction. During that period, from FY18 to FY23, General Fund revenues increased about 60%.
Let’s review some of the actual numbers. Back in Fiscal Year 2018 (FY18), the top individual and corporate tax was 7.4% and the state collected $3.7 billion in General Fund revenue. The top rate was lowered to 6.925% in 2019, yet in FY20, the state collected just over $4 billion of revenue. Rates were lowered in subsequent years to 6.5% in 2021, 6% in 2022 and finally to 5.8% (flat rate) for 2023, with House Bill 1 (HB1). Yet revenues increased to $5 billion in FY21 and to $6.2 billion in FY22. We at IFF will be the first to admit that the FY22 figures were swollen by billions of federal COVID dollars flowing through the economy. So, the drop to about $5.9 billion of revenue in FY23 should have been expected.
What about FY24, the current fiscal year? The Idaho General Fund Revenue Report, published in late October (for July, August, and September data simultaneously), depicts revenues for income and sales taxes down (11.5%) from the same period last year. Is this worrisome? Not really. Because of the clumsy way HB1 was drafted in the 2022 extraordinary session, $410 million for K-12 and higher education gets scraped off the top of revenues and parked into two separate funds for education. The following is contained in the July General Fund Revenue Report:
“Beginning this fiscal year, HB1 redirects $102.5 million in sales tax revenue each Jul., Oct., Jan., and Apr., totaling $410 million.”
What this means is that we have to add back $102.5 million of revenues to the FY24 first quarter results to understand the changes in economic activity due to all the other factors including tax rate changes. When we do that we see that revenues are down about (3.4%) from last year. Also, the most recent property tax relief bill, HB292, will divert an estimated $118 million of annual sales tax revenue to property tax relief.
So, if you take the most recent full-year revenue estimate for FY24 and add back the $410 million diverted off of the top for education, you see that revenues will be about $5.9 billion in FY24 or about $6 billion if you include the property tax relief.
Either way, that equates to about 60% revenue growth over the last six years. That’s a compound annual growth rate of about 8% per year. This means that Idaho has taken more than its fair share of your money after accounting for inflation and population growth, and that socialists who decry tax cuts are simply wrong.
Yes, there is room for additional tax cuts. Remember, it's your money!
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