BOISE, Idaho — The Idaho Legislature will return to the statehouse September 1 for a special session to "respond to the effects of inflation on taxpayers and the education system," Gov. Brad Little said in a proclamation issued Tuesday morning.
A draft of proposed legislation to be considered in the special session calls for a flat individual and corporate income tax rate of at least 5.8%, which would be the same at all levels; also, another round of tax rebates to be paid by December 31 of this year; and dedicated funding of no less than $410 million for public education.
"Moving forward, it would move us to a flat tax starting in January, which means people would bring home more in each paycheck starting in January," said State Budget Director Alex Adams. "The benefit of flat tax, historically there are about nine states that had it, and the argument for it is, it's the fairest and it's the simplest way."
Speaker of the House, Scott Bedke, told KTVB that a flat tax would be a tax cut to every Idaho citizen.
"Right now, you're taxed on the very first dollar that you earn," Bedke said. "What this does is, it makes the first $2,500 that you earn not taxed as an individual or the first $5,000 if you file as a couple, so that's a significant tax cut right there."
"The costs of the basic fundamentals to live every day have skyrocketed in just a matter of months," Gov. Little said Tuesday during a news conference at the Ranch Market gas station and convenience store in east Boise. "I could stand up here and opine on who's to blame for inflation in the national economy, but I don't think the people of Idaho want finger-pointing. The people of Idaho just want solutions and relief, and they need it now."
The legislation would authorize up to $500 million for the tax rebates, which Little on Tuesday said would be paid out before the holiday season, even though the draft legislation requires only that they be paid on or before December 31. Individual rebate payments would be roughly equal to 10 percent of the tax amount reported on 2020 tax returns or $300 per individual or $600 per joint return, whichever is more. The rebates would be paid to full-year resident Idaho taxpayers who filed in 2020 and 2021.
Regarding education, the bill calls for annual distributions of $330 million in sales tax revenue into a public school income fund and $80 million to an in-demand careers fund, beginning in fiscal year 2024, which begins July 1, 2023. The amount would increase by 3 percent each year.
The proposed legislation would take advantage of a projected $2 billion revenue surplus for the state.
"By acting now, the state can return a portion of the surplus to Idaho taxpayers and make needed investments in education to counter rising costs and the likely increase in post-secondary enrollment that occurs during times of economic stability," Gov. Little said in his proclamation. "The need to respond to the effects of inflation on taxpayers and the education system constitutes an extraordinary occasion. The state cannot risk inaction in the face of sustained, intransigent inflation."
The legislation also includes an advisory question to be placed on this year's 2022 general election ballot, asking if Idaho voters approve or disapprove of the legislation. The result would not be legally binding, but would guide lawmakers in deciding how to proceed next year.
The proposal outlined by the governor Tuesday will be the only item on which the Legislature is authorized to act during the upcoming special session.
An initiative titled the Quality Education Act, organized by Reclaim Idaho, is on the November general election ballot. It would create a new 10.925% tax bracket on taxable income in excess of $250,000 for individuals and create a new 8% corporate income tax bracket, with revenue collected as a result of the increased rates going into a fund for public education.
Reclaim Idaho co-founder Luke Mayville calls the governor's proposal "a big step forward for Idaho and a victory for the thousands of volunteer petitioners and petition signers across the state who've called for large-scale investments in our public schools."
In a written statement, Mayville also said the proposal was "clearly designed" to supplant Reclaim Idaho's initiative and "overburdens the middle class and gives unneeded tax breaks to large corporations and the wealthy." However, Mayville continued, the "bad elements of the governor's proposal are outweighed by the good."
When asked if the initiative played a role in the sales-tax-based public school fund legislation for the special session, Gov. Little replied, "It didn't."
"The intent is to give money back into the pockets of Idahoans because of inflation right now," he said. "Give money back into the pockets of people who are suffering the ravages of inflation and to ensure education funding increases going forward."
Gov. Little said he's confident lawmakers will pass the proposal during the September 1 special session because of the number of co-sponsors it has, including Democratic as well as Republican lawmakers.
"We know that there's a few areas that we would have changed if we'd had an opportunity, but we're really with the increase in education funding, and we like it being in a bucket," said Sen. Janie Ward-Engelking (D-Boise), who appeared at the governor's press conference alongside House Speaker Scott Bedke (R-Oakley), Sen. President Pro Tem Chuck Winder (R-Boise) and Sen. Jim Rice (R-Caldwell).
Reaction from legislative Democrats, Idaho GOP chairwoman
In a press release from House and Senate Democrats, Senate Minority Leader Michelle Stennett (D-Ketchum) and Assistant House Minority Leader Lauren Necochea (D-Boise) had more pointed critiques of the governor's proposal.
"These revenues would not be usable until 2024," Stennett said, referencing the education fund. "However, the proposed tax (rebate) would be immediate. This lopsided tax cut gives a little relief to Idahoans during these difficult times, but mostly favors the well-connected and not low-income Idahoans. If we had instead used that money instead for paying off school debt from bonds and levies, people would have enjoyed real property tax relief."
Necochea said, "It is unfortunate that the price of new education investment is another Republican tax package that shortchanges working families."
House Minority Leader Ilana Rubel (D-Boise) said she's happy to see the increase in education funding, but also said "GOP legislators dug such a deep hole in education funding that Idaho will likely remain, at best, in 49th place nationwide in education funding per pupil, and will continue to require hundreds of millions of dollars to get our school buildings into reasonable condition. That said, this is an important first step."
The Democrats' statement concluded by saying Democratic lawmakers are seeking assurances that the governor will veto any budget bills that "do not treat the $330 million and $80 million as additive to the K-12 and higher education budgets."
Idaho Republican Party Chairwoman Dorothy Moon issued a statement saying the party "applauds any effort to give the hardworking men and women of our state control over their own money and control over the destiny of their families."
Moon's statement continues: "But when the special session convenes this September, it is the legislature that will deliberate and decide Idaho's tax policy — not Idaho's executive, nor the special interests, the unions, the media, nor Democrat front groups. We look forward to the legislative debate and hope all Idahoans will encourage their legislators to chart the right course for our state, free of outside influence.
"Efforts to stymie the work of the people's elected legislators — including by dark-money-funded initiatives — are an affront to democratic deliberation and should be called out by every Idaho Republican serving in public office. In a time of runaway inflation and exorbitant housing costs, Democrat-backed tax increases — even those masquerading as funding for education programs — are the last thing Idaho's working people need..."
Moon is currently a state representative for District 8. Her term expires after the November election.
The special session is scheduled to begin at 8 a.m. Thursday, September 1.
Gov. Little's press conference in its entirety:
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