Tax Relief and lowering taxes.
Did you know every time you fill up your car with gas you are paying 32 cents per gallon in Idaho tax on gasoline? An additional tax of 1 cent per gallon on fuel in Idaho pays for clean water. You are also paying 18.4 cents per gallon in federal gas tax. These kinds of taxes are called excise taxes.
Revenue from the Idaho gasoline tax, a tax higher than 28 other states, raised $360 million last year. The monies are primarily spent on roads, bridges and railroad crossings.
Grocery Sales Tax.
Idaho has a current $2 billion surplus over budgeted expenditures for corporate and personal income taxes and sales taxes. The grocery food sales tax currently charges Idahoans about $221 million a year every time we buy groceries, and we get some of that back at the end of the year as a tax credit. In the end, the food sales tax nets the state about $19 million a year once all of the credits are paid back when taxpayers file their return. Not every Idaho family that pays this sales tax gets all of it back.
In 2017, Idaho’s legislature repealed the grocery sales tax, but then governor Butch Otter vetoed the bill citing the financial circumstances of the state at that time and basically declaring that though it didn’t net much revenue after the tax return credits, it did help the state’s cash flow throughout the year.
Now here we are with record budget surpluses in Idaho due to a growing state population and inflationary impacts. Idahoans are currently experiencing at least 11-12% inflation on food prices at the grocery store this year versus last year. While the state nets very little revenue from the food sales tax, and while the state enjoys historic tax revenues that exceed the needs of the state’s budget, how about we give 6% relief today to Idahoans on their grocery budget?
Especially for people who are surviving paycheck to paycheck, with grocery sales tax repeal we would all immediately save $6 on every $100 we spend. Repeal the grocery sales tax, and we’d literally keep $221 million in our own pockets rather than giving it away for a year to the State of Idaho as an interest free loan. The state, with a total surplus of $2 billion is definitely in the financial position to forsake $19 million of unneeded revenue.
A final consideration: grocery stores in border towns are not taxing food, so they enjoy a competitive advantage over Idaho businesses. For example, in Oldtown, Idaho the Super 1 must collect sales tax on food, while a mile away the Safeway in Newport, Washington does not collect sales tax since Washington does not have a sales tax on food.
With $2.1 billion in property tax revenues every year and a $2 billion surplus in total revenues, Idaho is virtually in a position to eliminate property taxes altogether with our surplus, without raising other taxes. In other words, we could redirect excess income taxes and sales taxes to local taxing districts in order to relieve altogether the current property tax burden.
We could be a private property sanctuary state in that case.
The tax on your property is collected locally and is distributed to all of the local taxing districts in your area – agencies like the sheriff’s department, your city, your county, local fire and EMS districts and local libraries and school districts.
Property taxes fall hardest on those with lower incomes. While the tax is based on the value of your property relative to other property owners, your ability to pay the tax is dependent on your ongoing income. And your cash income this year may not be related at all to the value of your property. Many people who are retired from their careers are living on a fixed income, like that available from social security.
According to Idaho law, your property must be assessed for property taxes at approximately the actual market value of your property. It is important to understand that even though some of our assessments have doubled in the last year, that does not mean our property taxes will double. More likely is that when your property value doubled, the property values all over your county also doubled, so that your share of the total property value is about the same as last year. That means the only property tax increase you will likely face is based on the increasing budgets of your local taxing agencies and districts, and those increases are limited by state law to just 3% a year. Your property value really only goes up more than your neighbors’ values when you add buildings to your property.
One thing that has been broken by rapidly rising property values is what is known as the circuit breaker. Idaho’s circuit breaker provides a property tax credit for homeowners whose property tax xonsumes a disproprionately large share of their income. The circuit breaker has seen adjustments the last two years to keep up with rising home values, but a fix made in 2022 may have actually made fewer people qualified because of the rapid pace of rising home valuations. This will need further adjustment in the next legislative session to correct for rapidly rising home values.
There is also available to primary homeowners a homeowner’s expemption, which is designed to shield homeowners from being taxed on a portion of the value of their primary residence. What this accomplihes is to shift the property tax burden to other types of property owners like commercial property and homes owned as a second or vacation residence.
As originally conceived, the homeowner’s exemption was designed to shield half the value of your home from property tax, but it has a cap of $125,000, and with today’s soaring market values (and corresponding property tax assessments), the exemption no longer provides a shield even close to 50% of your home’s value.
The Bottom Line on Tax Relief.
Republicans are definitely in favor of cutting taxes. But many times a tax cut is really only a shift in the tax burden unless there are corresponding spending cuts. In other words, the thing that really needs to happen in order to facilitate real tax cuts is to have real spending cuts for government agencies and bureaucracies. If we continue to demand the same level of governments services, then one way or another, some taxpayer will have to bear the burden of the cost of those services.
There is a way to cut spending without cutting government services and that is to make the operations of government more efficient. Since government usually does not have competition for the services it provides, it does not naturally over time maintain cost efficiency. One of the benefits of capital markets is that competition forces businesses to be more cost efficient in the services they provide. The solution for government is to find the equivalent of competition for the services we all agree that government should maintain.
Because of our rapid growth in population and in business revenues and personal incomes, there is a significant budget surplus in Idaho at the moment. Some of this is due to the effects of inflation. The legislature recently convened in September of 2022 and agreed to a one-time tax rebate of $500 million to Idahoans. A small tax rate cut on personal and corporate incomes was also passed amounting to $160 million of taxpayer savings. Both the rebate and the tax rate cuts are essentially giving back a portion of the overtaxation. But, there is much more room to reduce taxes without cutting services and without even yet getting into making government more efficient.
I am a Republican who wants to minimize the footprint of government in our lives and wants to find solutions to make the government we do want more efficient. And when we have surpluses, and they are maintained, we should cut tax rates to make Idaho more competitive and attractive.