Federal tax reform a hot topic for Idaho Legislature

BOISE - Tax reform was a signature accomplishment for Congress and President Donald Trump in 2017, but it could end up costing Idaho taxpayers more than $100 million next year.

A more likely scenario, though, is that the Legislature turns around and uses the additional revenue to pay for alternative tax cuts, such as eliminating the sales tax on groceries or reducing corporate and income tax rates.

Either way, the opportunities inherent in federal tax reform is something lawmakers likely will spend much of their time discussing once the 2018 session begins Monday.

Ken Roberts, chairman of the Idaho State Tax Commission, outlined the fiscal implications of tax reform during an Economic Outlook and Revenue Assessment Committee meeting Friday.

"All told, we believe the impact on Idaho (tax collections) will be a positive $97.4 million," he said.

In other words, if the Legislature chooses to fully mirror or conform with the federal tax code changes - including nearly doubling the standard deduction and eliminating the personal exemption - the state would collect almost $100 million in additional business and individual income taxes during fiscal 2019, which begins in July.

That's the net effect of several moving parts, Roberts said.

For example, raising the standard deduction would reduce adjusted gross incomes and lower state tax collections by an estimated $340.5 million per year, he said.

On the other hand, eliminating the $4,050 exemption taxpayers receive for themselves, as well as their spouse, children and other dependents, would increase adjusted gross income. Roberts said conforming with that change would boost state revenues by nearly $412 million.

Other miscellaneous changes would bring in another $47.5 million.

In all, Roberts said, individual taxpayers would collectively pay almost $119 million in additional taxes, assuming full conformity. Idaho businesses, by contrast, would save about $21 million per year.

Rep. John Gannon, D-Boise, noted that eliminating the personal exemption removes any tax break for larger families. Congress addressed this by doubling the child tax credit to $2,000; however, Idaho doesn't currently offer a similar credit.

"That means Idaho taxpayers won't have any kind of tax deduction or tax credit (based on family size), if we conform," he said.

Gannon said it's unlikely the Legislature will agree to a plan like that. He asked how much it would cost for Idaho to implement a $2,000 tax credit, but Roberts didn't immediately have that figure.

That's one of the issues lawmakers will no doubt debate as they decide whether and how to conform with the federal tax changes. There also will be discussion about how to use the additional revenue, should the Legislature choose to fully conform.

Idaho Gov. C.L. "Butch" Otter was asked about tax policy during a legislative preview meeting Friday, but declined to answer. He said he'll address the topic during his State of the State address Monday.

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Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.