The Legislature’s tax committees began the complicated job of trying to make sense of federal tax overhaul — and the effects on the state’s bottom line.
On Tuesday morning, the House Revenue and Taxation Committee and the Senate Local Government and Taxation Committee held a joint informational session to start wading into the details of the tax law.
So why is this arcane discussion important, and what does it mean for education?
The federal law matters around the Statehouse because Idaho’s income tax structure generally mirrors the federal code. So when the feds change tax code, the Legislature generally follows suit.
Most years, state conformity with federal tax code is a mundane matter, as the state signs off in order to make it a little easier for businesses and families to file their federal and state income tax returns. But this year, the potential impact on the state budget is much more profound.
The 2018 bottom line? If the state conforms with the federal changes in full, Idahoans would pay an additional $97 million to the state. One reason: The new federal law increases the standard deduction for personal income tax returns, but it also eliminates personal and dependent exemptions. Add up all the changes, and Idahoans would see their state tax bill go up.
But even if the state complies with the federal tax changes in full, that’s not necessarily the last word.
Lawmakers may be even more inclined to look for tax cuts to offset this $97 million hit, at least. In an election year, lawmakers are likely to push for a sizeable tax cut — especially since they were thwarted in their attempt to eliminate the sales tax on groceries. Gov. Butch Otter is still no fan of repealing the grocery tax, but he has proposed income tax reductions that would more than make up for the cost of complying with federal tax law.
A tax cut reduces the money available to pay for state programs. And since K-12 and higher education receives more than 60 percent of the state budget, the stakes for schools are high.
The tax committees took no public testimony and took no action Tuesday morning, instead listening to more than an hour of presentations from the State Tax Commission. The conformity debate hasn’t really started in earnest, although on Monday, House Revenue and Taxation introduced a bill to conform with the federal changes that would have a retroactive effect on 2017 changes.
The bigger questions await. And on Tuesday morning, State Tax Commission member Ken Roberts didn’t recommend a course of action — but he urged lawmakers to provide taxpayers with some clarity.
“2018 has already started, and those dollars are being earned,” said Roberts, himself a former legislator.
Add education leaders to the list of Idahoans who are seeking clarity. One way or the other, this session could have a big effect on the way Idaho finances its education system.