Questions arise over Quality Education Act’s impacts on 2022 tax legislation
By Ruth Brown, Idaho Reports
Advocacy group Reclaim Idaho reached a huge goal last week when its voter initiative on education funding received certification from the Secretary of State, but the proposition could see challenges after legislators made changes to income tax brackets.
The Quality Education Act, which will be Proposition 1 on the November ballot, would raise the corporate income tax to 8%. Additionally, people earning more than $250,000 a year would pay a new 10.925% tax rate, but only on the income they earn over that threshold. Married couples would pay new taxes only on their income over $500,000. The proposition would create a new tax bracket for people in that income range.
Reclaim Idaho started gathering signatures for the Quality Education Act in 2021. But during the 2022 Legislative Session, lawmakers passed HB 463, which reduced the number of tax brackets from five to four. The bill also reduced the corporate income tax and granted some rebates.
Should voters pass the Quality Education Act, it isn’t clear if the Legislature would need to revisit changes made in the tax brackets from that bill. The language in Proposition 1 addresses 2021 tax code, not the changes the Legislature made in 2022.
As first reported by Boise State Public Radio, on July 19, Chief Deputy Attorney General Brian Kane outlined his concerns over Proposition 1 in an email to Chief Deputy Secretary of State Chad Houck in response to an inquiry from Houck.
On July 14, the Tax Foundation, a national nonprofit, brought up its concerns with the initiative in a post titled “Idaho’s Tax Hiking Ballot Measure Riddled With Mistakes.” Houck wrote to Kane to ask if the post was accurate.
“…The ballot measure reverses recent tax cuts implemented by amendments to this code section in the 2022 legislative session,” Kane wrote to Houck. “The ballot measure uses the 2021 version of the statute as the base language to which it then applies amendments. If the language in the ballot measure were enacted it would disregard all the 2022 legislative amendments that lowered tax rates.”
Reclaim Idaho co-founder Luke Mayville disagrees.
“It is very clear that the 2022 tax cuts do not change this initiative in any substantial way,” Mayville told Idaho Reports on Monday. “The text of our petition states that only income above $250,000 will be impacted.”
The tax cuts passed in 2022 did not address income specifically above $250,000, which the initiative would. Because the Quality Education Act only asks for the top earners to face an additional tax, it’s possible the Legislature could leave the brackets as they are, with 2022 changes in place, but add an additional bracket for the newly formed education fund. Those top earners would then contribute to the education fund, should voters approve the initiative.
Mayville argued the funding source statement and fiscal note are “perfectly clear” in the initiative. The initiative also cites Idaho Code 63-3024, which HB 463 amended, and does not attempt to remove any changes the Legislature made to the code in 2022. It only adds one section regarding personal income above $250,000.
Houck told Idaho Reports on Monday that he thought it was unclear how the initiative could change the tax brackets, if voters approve of the proposition.
“Do those become the tax brackets? What does the Legislature do with that?” Houck said when asked about HB 463. “That becomes an issue if it passes.”
Houck noted that his office only has purview over the language that was certified.
“I think we will see a lot more questions than there are answers,” Houck said.
Mayville said it was “baffling that the Secretary of State has such a misreading of what this initiative will do.”
In 2021, Reclaim Idaho estimated that increasing the taxes on top earners would raise nearly $324 million annually for education. It’s unclear how much that number would change if the 2022 tax legislation is reversed.
In his July 19 letter, Kane also addressed an issue regarding the ballot measure’s potential new “tax cliff” that wouldn’t comply with the new 2022 legislation.
“…The ballot measure ‘introduces a tax cliff’ because the base amount ($16,097) included with the new higher rate was calculated off of the numbers in the statute, which are old 1998 numbers that have since been adjusted for inflation,” Kane wrote. “The Tax Commission is responsible for calculating and publishing these inflation adjustments.”
“It is clearly a misreading to think the base language of our initiative would alter the existing code,” Mayville said. “It’s only the underlined section of any piece of legislation or an enactment of the Legislature that amends existing code.”
Kane also addressed a potential error in the section of the initiative about inflation.
“The numerator and denominator of the inflation adjustment for the new bracket somehow got flipped such that when inflation goes up, the dollar threshold for the tax bracket will go down,” Kane wrote.
Mayville said that was language taken directly from the Attorney General’s Office in the certificate of review, provided to Reclaim Idaho in May 2021.
Despite the concerns, Mayville is confident the initiative is valid and would not change the 2022 tax cuts.
“If we win in November and any government agency undermines the intention of our initiative in any way by misreading it, we are prepared to take the issue to court,” Mayville said. “The only definitive statement on this issue would be the statement of the court.”
Attached below is a copy of an email sent from Chief Deputy Attorney General Brian Kane to the Idaho Secretary of State’s Office on July 19, 2022.