As Washingtonians continue to wait for our leaders to prioritize tax relief, several states across the country are in the second and third rounds of tax cuts. For example, the governor of Idaho today called a special session for September 1st not only to lower taxes again this year, but also to improve Idaho’s competitiveness by joining many other states in moving away from progressive income taxes. According to Governor Little’s press release, the special session will focus on:
- “IMMEDIATE TAX CUTS FOR ALL – $500 million in immediate, one-time tax refunds. Idahoans will recoup 10% of income taxes paid in 2020, with minimum $300 discount for individuals and $600 for co-registrants. Seniors claiming the grocery tax credit are also eligible for the minimum rebate. Discounts will start rolling out in September.
- TAX CUTS FOR ALL underway with new lower, flat income tax – Eliminates the first $2,500 of tax income for individuals and $5,000 for joint filers, and establishes a new lower flat tax of 5.8% across the board (from 6%), to provide more $150 million in ongoing relief to all working Idahoans starting in January 2023.
- New Historic Ongoing Investments in Education While Lowering Taxes – Injects a total of $410 million into Idaho education through an ongoing sales tax transfer, the largest investment in education in state history. The plan invests $330 million in public K-12 schools to help meet rising costs due to inflation, and $80 million will go to training for in-demand careers and preparing our institutions to the likely increase in workforce development training that occurs during times of economic crisis. uncertainty.”
This new round of proposed tax cuts in Idaho comes on top of more than $350 million in tax relief passed earlier this year.
Abandoning progressive income taxes will help improve Idaho’s competitiveness and reduce income volatility. As indicated by Fitch’s recent state credit rating:
“Idaho’s revenues, largely income and sales taxes, are economically sensitive, especially income taxes…Idaho’s revenues come primarily from personal income taxes, accounting for nearly half of general fund revenue, and sales taxes, accounting for about 40%. The performance of tax revenues is sensitive to changes in the economy, particularly the component of personal income tax derived from non-withholding tax.
Income tax volatility is something that has been noted in Washington’s credit rating. According to Standard and Poor’s:
“Washington’s incomes have always been less cyclical than others (due in part to the absence of personal income taxes). . . we have observed that capital gains tax revenues are among the most cyclical and difficult to predict revenues in many other states. »
As Washington leaders continue to flirt with our “competitive advantage” of no income tax, Idaho is taking ongoing steps to improve its competitiveness by lowering its income tax. The move to a flat rate could eventually put Idaho on a path to adopting a phase-out of its income tax based on future growth. Should the Gem State finally do so, the tax competition gauntlet would be officially thrown in Washington.
Another interesting thing about Idaho’s special income tax cut session, based on the implementation date of the proposal, it could have the effect of overturn a ballot measure proposing a massive income tax hike for education spending. Our friends at the Mountain States Policy Center will soon publish a study on this proposed tax increase in Idaho.
It’s only in a state that prioritizes tax relief that you see a governor use a large-scale tax cut and an education investment plan to checkmate a government proposal. massive increase in taxes. Meanwhile, Washingtonians continue to wait their turn for tax breaks.