Are You In Idaho's Top Income Bracket? Chances Are – Yes

Apr 3, 2017

Tuesday, April 18 is tax day. In Idaho, residents will file both state and federal income taxes. The Gem State has had this kind of tax since 1931.

But if you were hoping for some income tax relief on the state level you’ll have to wait at least another year.

Despite attempts to pass a law that would lower Idaho income taxes, the recently-adjourned state legislature was unable to push through a proposal. (Lawmakers did pass a repeal of the grocery tax which Gov. C.L. “Butch” Otter has signaled he may veto.)

House Majority Leader Mike Moyle, R-Star, argued during a February House debate that decreasing the tax rate for top income earners by 0.2 percent would attract new businesses and make Idaho more competitive with other western states. This part of the proposal was later changed to a decrease of 0.1 percent, but ultimately failed to get to enough votes. Moyle has been pushing for an income tax break for years.

But setting aside the arguments for and against Moyle’s income tax cut for a minute, who exactly is in this top bracket? Turns out: about 46 percent of Idaho income taxpayers as of 2014.

If you make at least $10,905 as an individual – or $21,811 as a couple – you are technically in Idaho’s top income bracket and are taxed at a rate of 7.4 percent. (For reference, the federal government considers someone who earns less than $12,060 as below the poverty line.)

Here’s how the brackets shake out for your taxes this year:

Income Tax Rates For Individuals 2016

Income Tax Rate For Married Couples 2016

Idaho’s brackets differ from those of many states, including Oregon where the top income bracket for individuals is reserved for people who make at least $125,000. So why does Idaho treat someone who makes $11,000 a year the same as someone who makes $111,000?

According to Norton Francis with the Urban-Brookings Tax Policy Center, setting up Idaho’s income tax structure like this creates consistency.

“[S]tates with really progressive income taxes like Oregon or California,” says Francis, “they see a lot of volatility in their income tax revenue because there are large shifts of incomes at higher levels. So you don’t see that as much when your tax rate is below $100,000 or $50,000.”

Francis says higher incomes can shift more than lower ones, making projections about Idaho's tax base less predictable for the state.

“Volatility is sort of a bad planning thing because it creates uncertainty in the budget. But in general, [states with higher tax brackets] do produce more revenue.”

Francis says 17 other states besides Idaho use inflation to adjust the brackets on a yearly basis, although he says most states round to the nearest $50 interval.

"Volatility is sort of a bad planning thing because it creates uncertainty in the budget. But in general, [states with higher tax brackets] do produce more revenue." -- Norton Francis

Cynthia Adrian with the Idaho Tax Commission says a law passed in 2000 mandated the practice.

“We look at the consumer price index for the preceding year,” says Adrian. “So if we’re looking to set the tax brackets for 2017, we would look at the consumer price index for 2016. It is then divided by the consumer price index for 1998 and you come up with a number. That number is then multiplied by each bracket in the statute. And that’s how we come up with the odd numbers.”

If your head is spinning from that math, you’re probably not alone. But Francis says making adjustments that take inflation into account can help the state stay true to the original intent of the law, and prevent what’s called “bracket creep.”

“When your earnings go up, and you suddenly find yourself in higher brackets because the brackets don’t move with inflation,” says the tax policy expert. “And so by indexing them you to some extent keep those brackets similar to the original intent of the thresholds.”

Francis says the culture of a state has significant sway over tax policy. He uses Montana as an example: The state does not have a sales tax, but every so often a bill will come up in the state legislature proposing to create one. Inevitably, these proposals are rejected.

“So when you go about cutting the income tax, for example, the next question is OK so – what do we think is going to happen when we cut the income tax? And why do we think it’s going to be better than it is now?”

But the tax policy expert questions the need to cut Idaho's income tax. He says compared to other states, Idaho is already a low-tax state.  

Find reporter Frankie Barnhill on Twitter @FABarnhill

Copyright 2017 Boise State Public Radio