BOISE, Idaho (AP) — A plan to cut Idaho's corporate and income tax rate by $35 million a year has cleared a Senate committee, a move that brings lawmakers one step closer to heading home and delivering a legislative victory for the governor, business owners and the state's top wage earners.
The Senate Local Government and Taxation Committee voted 6-3 on the tax relief bill despite reservations by Democrats who say the state has more pressing needs for any surplus revenue.
The tax relief bill is one of three key components to a going-home package negotiated this week by Gov. C.L. "Butch" Otter and leaders in the Senate and House, which has already signed off on the tax cut. The full Senate is expected to consider the tax cut later Thursday in hopes of adjourning the 2012 session Friday.
With Idaho's economic picture improving, Republican leaders want to divvy up an estimated $105 million surplus three ways: $35 million in tax relief; deposit $35 million in state rainy day accounts and direct $35 million for teacher salaries over the next five years.
"This is also a vote for higher funding for teachers and rainy day funds," Sen. Chuck Winder, R-Boise, said in urging the committee to approve the tax bill. "This is a great priority bill, part of the three legged stool. If you chop off one leg, you run the risk of chopping off the other two. This is the way forward."
The panel's two Democrats and committee chairman Tim Corder, R-Mountain Home, voted against the bill, contending the state has many other pressing needs for extra revenue, especially if the early signs of Idaho's economic turnaround slow or reverse.
Democrats on the panel suggested the money should be used to bolster education, roads and bridges or restore cuts made in recent years to Medicare and other programs.
Sen. Elliot Werk, D-Boise, criticized the tax proposal as relief that narrowly targets the state's wealthiest wage earners and businesses, with no guarantee the extra money will do anything to create jobs or stimulate the economy.
"If this is the best we can come up with, then we've got a long way to go," said Werk.
The proposal would lower the top personal income tax rate from 7.8 percent to 7.4 percent and the corporate income tax rate from 7.6 percent to 7.4 percent. Idaho's Division of Financial Management projects the rate change would provide $71 in annual relief to a family of four in the 7.8 percent bracket, with a gross income of $100,000. A family of four with gross income of $80,000 or less would not gain any benefit from the bill.
The Idaho State Tax Commission estimates that a little more than 17 percent of Idaho income tax filers would benefit from the cut.
Several Republicans on the panel acknowledged struggling with how to vote Thursday.
Sen. Dan Johnson, R-Lewiston, said he understands the difficulty facing Idaho's middle class and yet is being sympathetic to giving businesses a break from a tax rate considered high when compared to neighboring states. The tax relief is supported by a variety of Idaho business groups that argued giving companies and small business extra money will help create jobs and stimulate the economy.
Johnson recounted his personal challenges, including a 14-month period of being unemployed and relying on public assistance. But ultimately, Johnson said he was swayed when he got a call Wednesday night from Otter, who urged Johnson to vote his conscience.
"I believe in a good, strong tax policy ... and I think part of that policy is to lower these rates," said Johnson, a first-year senator who was appointed by Otter. "I look at it as investment in our future."