What's Next for Your Taxes?

Article published Aug 27, 2006
By Gregory Hahn

What's next for your taxes?
On Friday, Idaho lawmakers raised your sales tax by a penny to pay for property-tax relief. Now they might cut taxes on groceries.

After 16 of the most bitterly fought and passionately argued legislative hours in recent memory, it may be hard to imagine Idaho's Republicans and Democrats agreeing on anything any time soon. But there's already a new consensus building at the Idaho Statehouse, despite Friday's special legislative session on taxes.

What's bringing lawmakers together is groceries.

Idaho is one of eight states that tax food at the same rate as other goods. Taxing food is largely what makes the sales tax regressive, meaning low-income people pay a greater percentage of their income on the tax than the wealthy.
And with Friday's decision to raise the sales tax to 6 percent in October to pay for property-tax relief, it's hard to find anyone at the Statehouse who doesn't want to give folks a tax break on the food they need to eat.

"You're taxed on food and clothes," Coeur d'Alene Democrat George Sayler said, "but not on a massage or a haircut."
Now, every Idahoan who files an income-tax return can claim a $20-a-person grocery tax credit — $35 if you're over age 65. When the sales tax rate rises, the credit essentially shrinks. What was once a credit on taxes for $400 worth of food will drop to a credit on $333 worth Oct. 1.

The Legislature likely will debate food taxes in its next regular session in January. The debate may hinge on two ideas: Should Idaho eliminate or lower the tax on food, or raise the credit?

Many Democrats and conservative Republicans have pushed for years to stop taxing groceries altogether. But at the moment, more lawmakers seem to be leaning toward raising the credit.
House Minority Leader Wendy Jaquet, D-Ketchum, said a lot of Democrats want to eliminate the food tax. She's not sure she agrees because tourists would share that break, while a bigger tax credit would go just to Idahoans.

Even lawmakers who want to raise the credit haven't agreed on how much. That's one reason Gov. Jim Risch didn't include a higher credit in his bill this past week.
"The 'shock and awe' guys want to get it to $100," Oakley GOP Rep. Scott Bedke said. "There are some who think doubling has a nice ring to it."
The rule of thumb on the tax credit is that every $5 increase — say, to $25 and $40 — would cost the state $6.2 million. To boost the credit to $100 — which would cover the sales taxes on $1,667 worth of food purchases — would cost the state nearly $100 million a year.

And don't think that the next legislative session will be smooth just because lawmakers have found a general area to agree on.

The Democratic minority in the Senate tried every trick it could to knock Friday's session off the tracks, and the Republican majority countered just as aggressively. The repercussions could echo in January. Senate Majority Leader Bart Davis of Idaho Falls could punish the Democrats by keeping Republican chairmen from ever holding hearings on their bills. But the Democrats could just keep the Senate clerk reading bills, which is a procedural protest that does exactly what it says and can add hours or days to any Senate action.
Complicating grocery-tax relief will be questions about state finances. State economists predicted two weeks ago that Idaho was on its way to another $200 million surplus, saying the construction and housing sectors would supply the revenues between now and July. Most of last fiscal year's surplus was spent Friday.

But a Thursday story in the Idaho Statesman about new housing-market troubles in the Treasure Valley led many lawmakers Friday to say they weren't sure what the future would bring. Many of them are still stinging from 2001, when they passed the biggest income tax cut in Idaho history, only to watch the economy crack in the following months. Two years later they had to raise the sales tax temporarily just to get by.
State revenues aren't the only question mark between now and January. Come November, voters will weigh in on some key decisions:

• Whether Risch's plan to eliminate the property tax for schools and raise the sales tax a penny was a good idea. Their verdict will not be binding.

• Whether they want the state to raise another $200 million to boost school budgets. This measure was put on the ballot before Friday's special session and originally envisioned raising the sales tax a penny, but proponents now plan to seek alternative state funding instead.
• Whether they want libertarian-leaning Republican C.L. "Butch" Otter or Democrat Jerry Brady in the governor's office.

The Republicans are counting on Idahoans to say yes, no and Otter, but any hiccup could throw the Statehouse into a struggle it hasn't seen in the several years Democrats have been relegated to a small caucus. And that could affect tax legislation on more than just groceries.
Jaquet brought up one idea that, if it catches on among Democrats, could change partisan debates on future property tax battles. Since the Republicans have pulled school funding largely away from property taxes, she said, Democrats have less reason to fight against the kind of tax system California embraced in the late 1970s that sets a maximum rate at which a home's taxes can grow each year. "Maybe it's time for Prop 13-style reform," Jaquet said.

Meanwhile, the most conservative Republicans still aren't 100 percent behind the sales-tax increase they supported. Some hope they can slide it back to 5.5 percent or even 5 percent.

Challis Republican Rep. Lenore Barrett has opposed virtually every bill that has ever even hinted at a tax increase, but she voted with the governor Friday. Still wanting the Legislature to cut budgets and restrict funding, she said the fat lady hadn't sung yet.
"She can't sing unless you put her on stage," Barrett said.