Idaho lawmakers want to solve two crucial issues of revamping the state taxes for stimulating the economy and the essential transportation problem. The proposal has the support of the leadership and if come to fruition, can deliver about $150 million for transportation in 2015. Only the issue of education supersedes these two issues.
It is envisioned that the deal can be achieved by implementing an increase of one penny in state sales tax. This increase, if done, will result in seven percent sales tax. This will eliminate sales tax on groceries altogether. The money which will be generated by the increase of a penny in sales tax, minus the absent sales tax for groceries will give $150 million to the state highway fund.
The plan’s final part will substitute the graduated rate of income tax applicable at present with a 6.6 percent flat rate for both the corporate and personal income taxes. This 6.6 percent figure will be the starting point for the discussion as total collections at this rate will almost equal current take. This deal will meet the standard goals which were underlined by Governor Butch Otter at the time of opening the legislative session in January. In the State of the State speech, Otter had proposed an income tax reduction below seven percent. He is trying to find a way to increase the highway spending without taking money from the general fund kept by the state.
It is acknowledged by legislators that the toughest part to pass will be income tax to be levied on a flat rate. The major problem of such a tax package is that it increases the rates for the poorer sections. However, its proponents argue that such adverse effects can be eliminated by removing the sales tax being imposed on groceries. The proponents also point to the fact that a funding proposal for realistic transportation invariably involves the tweaking of one or multiple state taxes having a fixed rate, including the regressive 25 cent for every gallon gasoline tax. These taxes, unlike the graduated taxes, disproportionately affect the less earning citizens.
Advocates of the deal also put forward another argument that the increase in sales tax for transportation funding links it directly to the state’s economy, meaning extra money for roads with the improvement in the economic conditions. The flat rate of income tax, as per these advocates, makes Idaho a more attractive state for purposes of investment. It will also be more competitive with its neighboring states for business expansion.