Idaho tax, education bill has support, but cracks possible

BOISE, Idaho (AP) — Idaho lawmakers are scheduled to meet Thursday at the Statehouse to consider using the state’s projected $2 billion budget surplus for a $500 million income tax rebate.

Legislators will also consider spending money - a $410 million annual boost for K-12 schools and post-secondary education using sales taxes. 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.

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

A tax cut of more than $150 million annually by creating a corporate and individual flat tax rate of 5.8% starting next year is also on the table.

A majority of Republican and Democratic lawmakers have signed on as co-sponsors, but lawmakers say cracks could form around the tax and education policy details.

In particular, some Democrats are concerned about the ongoing $150 million tax cut they say mainly benefits the wealthy, while some Republicans have doubts about the education portion of the bill, particularly a baked-in 3% boost each year to the initial $410 million.

The proposed legislation has already been made public, and it has enough co-sponsors in the 70-member House and 35-member Senate to make it to the governor’s desk for Little’s signature. Significantly, among those co-sponsors are enough members in a House committee and Senate committee to make sure the bill moves to the floor of the respective chambers for a full vote by all members.

But it's also possible members on those committees, or on the House and Senate floor, could seek to amend the legislation.

Republican Sen. Jim Rice, one of the bill's sponsors, chairs the Local Government and Taxation Committee — through which the bill must pass — and was confident it would make it to the full Senate.

“It’s a long-term growth strategy that we’ve been putting in place for years that has resulted in this (legislation),” Rice said.

Democratic House Minority Leader Ilana Rubel is also sponsoring the bill, lauding the education portion but expressing reservations about the flat tax. She noted the education money would only boost Idaho from 51st to 49th in the nation in per-pupil spending.

“It may not be what everybody wants,” Rubel said. “But it's a pretty good move in the right direction and satisfies a lot of groups' objectives."

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.

Rice said the flat tax was a key component of the legislation.

“When you have down economic times, a graduated income tax makes them worse,” he said. “The closer you are to a flat tax, the better off you are in bad economic times.”

But Rubel had doubts.

“I hope that we don't come to regret this move of cutting a pretty substantial revenue stream when we hit harder times,” she said.

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. It also comes with the annual increase of 3%.

Republican Rep. Bruce Skaug is also sponsoring the legislation. He said he overall liked the bill, especially the tax rebate and cut, but would like to see the rebate larger and an amendment eliminating the 3% annual education money increase.

He declined to say if he expected such an amendment to be attempted by a lawmaker on the House Revenue and Taxation Committee or on the House floor. If the 3% annual boost survives, he's not sure he'll vote for the bill.

“Even as a co-sponsor, I can change my mind during debate with new information,” Skaug said.

If the 3% boost ends up getting cut, it's possible other lawmakers could withdraw their support.

Another aspect of the bill is that the next Legislature that meets in regular session in January will decide how to spend the education money. Skaug said that was an important part of the legislation to him.

The special session comes ahead of the November election when all of Idaho’s 105 state legislative seats are up for election, as well as the governor and other statewide elected officials.

Also on the ballot in November is an initiative called the Quality Education Initiative that backers have said would boost education funding by raising taxes on corporations and individuals making $250,000 or more annually. Backers say Idaho schools are badly underfunded and that the initiative would raise more than $300 million.

If passed by voters, it would take effect Jan. 1. However, if lawmakers in the special session approve the proposed bill and Little signs it, it would take effect Jan. 3, negating and replacing the initiative.

The special session is expected to last only one day, but a special session in 2020 went three days and turned chaotic, with antigovernment activist Ammon Bundy arrested twice and lawmakers forced to abandon a committee room by an angry crowd. Bundy is now running as an independent candidate to replace Little as governor.

“Experience has taught me not to count any chickens,” Rubel said about the possibility of a one-day special session, noting that 2020 session. “Before we knew it, we had riot police in the building and 30-plus bills were getting introduced.”