Massive Idaho tax cut, education bill heads to governor

BOISE, Idaho (AP) — A massive tax cut and education spending bill made possible by the state’s $2 billion budget surplus made a speedy trip through the Idaho Legislature in a special session on Thursday.

The Senate voted 34-1 to send to the governor the bill that has a $410 million annual increase through sales taxes for education as well as a $500 million income tax rebate this year. The bill also has an ongoing $150 million income and corporate tax cut by creating a 5.8% flat tax.

The House earlier in the day approved the bill 55-15.

Republican Gov. Brad Little last week called the part-time Legislature back to Boise due to high inflation, currently at 8.5%, which he said was harming taxpayers and the education system.

The bill contains the tax rebate and a long sought after flat tax liked by Republicans. Democrats liked the education spending component. That made it difficult to oppose for many lawmakers in both parties and, despite complaints, easily cleared both houses.

“Putting together a tax bill is an interesting process,” said Republican Sen. Scott Grow, who supported the bill, during debate in the Senate’s Local Government and Taxation Committee. “Here we have 105 legislators, and I can guarantee we’ve got 105 opinions as to what this bill ought to be. It’s not exactly what I would have done.”

Attempts on the House floor to split the legislation into multiple parts failed by lopsided votes.

The legislation was announced last week, though slightly changed in the version lawmakers took up Thursday morning. It had enough co-sponsors in the 70-member House and 35-member Senate to pass, and was widely expected to make it to the governor’s desk for his signature.

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.

“In two years, we’ve gone from seven brackets to five brackets to four brackets,” said Republican Rep. Steven Harris during debate on the House floor. “This year, one bracket flat tax in Idaho. That’s amazing. That’s wonderful. Every dollar you earn doesn’t get punished as you move up that income rate.”

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 what lawmakers are calling in-demand occupations. How all that education money is spent will be decided by future lawmakers.

An initial version of the bill made public last week included an annual increase of 3% in the education spending, but that troubled some Republican lawmakers and it was cut from the bill introduced Thursday morning. But the bill still retained support among Democrats.

“Our children and grandchildren need an education system that will allow them to compete in the global economy,” said Democratic Sen. Janie Ward-Engelking, a former teacher and education advocate.

Backers say the legislation will lift Idaho from the bottom in the nation in spending per pupil. 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.

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 Little signs the bill passed in the special session, as expected, it would take effect Jan. 3, negating and replacing the initiative.