Hardworking Idahoans of modest financial means are facing rising costs, especially in rents and property tax bills as Idaho’s housing market has boomed. State tax and budget policies should address this serious issue and help keep people earning and participating in Idaho’s economy. But if passed, House Bill 741 would raise Idaho’s sales tax considerably on all purchases and attempt to offset it with a relatively small increase in the grocery credit. Moderate to low income Idaho families who rent their homes will see – on average – a tax hike of potentially hundreds of dollars but no reduction in their housing costs.
The reason HB741 leaves out many Idahoans is because the bill seeks property tax relief exclusively for people who own and occupy their primary residence and already qualify for a homeowner’s exemption. This has real implications for households of low to moderate incomes: we know they typically spend three quarters of their income on sales-taxable items, while middle-income families spend about half, and upper-income families spend roughly one sixth (according to a 2019 Institute on Taxation and Economic Policy analysis of the Consumer Expenditure Survey). The proposed sales tax increase shuts down the wage gains moderate and low income renters have seen from increased demand in the labor market.
At the same time, renters have seen Idaho rents all over the state grow an astounding 31 percent from 2020 to late 2021. Most moderate-income renters in Idaho are paying more than they can comfortably afford in rent. A bump in the sales tax would be especially difficult for renters, many of whom are already stretched thin by rising rents and cost increases at the gas pump and in the grocery aisle.
Higher-earning Idahoans with homeowner’s exemptions will already benefit significantly from this year’s passage of income tax cut legislation, House Bill 436, which will result in both large one-time rebate checks and permanent income tax cuts that already offset rising property tax bills. More cash to Idahoans who are comfortably able to shoulder their share of property taxes is not a good use of dollars raised by an increased sales tax. Additionally, Idaho homeowners have gained significant equity as home prices have skyrocketed. Idaho leads the nation in home equity growth, which – while not cash-based relief – helps homeowners pad their nest eggs.
The bill’s proposed new sales tax rate – 7.85 percent – is higher than all neighboring states, including Oregon and Montana, which do not levy a sales tax at all. So far, sponsors have said there will be no competitive economic effects in border communities and that the increase would raise $865.2 million annually. It is unclear which analytic assumptions the bill’s fiscal note takes up – or does not take up.
Idaho policy makers should take a less broad approach to address rising property taxes so that relief reaches people who need it while keeping the sales tax low. Some solutions are already making their way through the legislative process. Two bills would fix the state-level circuit breaker program, keeping about 2,000 elderly homeowners on the program who would otherwise have been removed because of changes included in last year’s HB 389. We should not only fix the program, but improve this approach to include more people. Other bills such as HB 690 and HB 735 would use smaller shares of expected state revenue and put them towards property tax relief that are equally as broad as HB 741. At the Center, we are supportive of a stand-alone bill that would increase the grocery credit to $120 and even beyond to keep up with food costs.
We do not support House Bill 741 due to its negative impacts on low and moderate income Idaho families and overall disparate approach to property tax relief.