House Bill 380 Could be a Double Hit to Revenue and Federal Fiscal Aid

A proposal from the Idaho Legislature will result in deep state revenue cuts, as well as risk federal fiscal aid dollars to Idaho, according to analyses by the Idaho Center for Fiscal Policy.

House Bill 380 - which would reduce the number of income tax brackets from seven to five, reduce the remaining income and corporate tax rates as well as provide a one-time tax rebate - could cost between $383 million and $398 million in its first year (fiscal year 2022) and $163 million to $171 million in years thereafter, per the bill’s fiscal note and analysis by the Institute on Taxation and Economic Policy.

House Bill 380’s provisions would expend millions of dollars annually on tax benefits almost exclusively for the wealthiest Idahoans. According to the Center’s analysis, Idaho households with incomes up to $66,000 a year would see a decrease in their tax liability in the range of $82-$246 on average from this proposal, depending on their circumstances. The top 1 percent –those with incomes of $482,000 and above – would see an $8,883 tax cut, on average.

“The economy is rebounding and massive tax giveaways to the wealthy and well-connected at this point have no policy objective that is related to economic growth,” said Alejandra Cerna Rios, director of the Idaho Center for Fiscal Policy. “Everyday Idahoans on the other hand, approve highly of investments in schools, roads, and other core public services that they can benefit from and that will sustain growth over time” Cerna Rios continued.

The proposed elimination of two tax brackets in HB380 would make Idaho’s income tax structure closer to a flat tax. A flat tax taxes all income at a set percentage, regardless of ability to pay. As a result, middle- and low-income households must bear more of the cost of state services and pay a higher share of their earnings in state taxes overall.

Of the $1.25B set aside for Idaho in federal fiscal aid from the American Rescue Plan Act, a holdback based on HB380’s fiscal impact of $398M could reduce Idaho’s fiscal aid allocation by one-third, to about $867M. Tax cuts passed recently, like the new PPP grant deductibility, could add to the holdback, as could subsequent years of HB380’s two permanent provisions – the corporate and income tax reductions - if they are enacted and remain in place.

The United States Treasury has not issued guidelines on how these cases will be handled though other states have hit pause on cuts until they learn more.

Eighty-one percent ($13.8 million) of the value of the overall corporate tax cut from HB380 would go to shareholders who live in other states and countries.

Idaho’s total tax collections per person are the eighth lowest in the country and second lowest of the Western states, according to the Idaho Tax Commission.

The full report can be found at the Idaho Center for Fiscal Policy’s website:

https://idahocfp.org/new/wp-content/uploads/2021/04/04-26-House-Bill-380-Overview_3.pdf