Fiscal Cliff
3:57 pm
Thu January 3, 2013

Payroll Tax Increase Could Affect Idaho’s Sales Tax Revenue

Speaker of the House John Boehner answers questions during a December press conference on the fiscal cliff negotiations.
Credit Speaker Boehner's photostream / Flickr Creative Commons

After the bruising "fiscal cliff" negotiations wrapped up earlier this week, Idahoans will take home less from their first paycheck in 2013.

The "fiscal cliff" negotiations failed to extend a temporary payroll tax holiday that took effect in 2010, raising the rate by 2 percent. For an Idaho worker making $30,000 annually, this change means they will pay an additional $600 to the federal government.

With 722,000 workers in Idaho, this part of the fiscal cliff deal could make a difference at the state level. According to Michael Chakarun of the Idaho State Tax Commission, the end of the payroll tax holiday could affect Idaho’s revenue in the long-run.

“To me, that’s the biggest hit," says Chakarun. "People are going to see a reduction in their paychecks because of that. There’s the infamous trickle-down effects; the less money they spend in the economy the less money we collect in sales tax.”

He says that with a 2 percent decrease in income, Idaho consumers could pull back on spending. If this happens, less money will be collected by the state's 6 percent sales tax.  

Along with the payroll tax for all workers, the "fiscal cliff" deal also raises tax rates for high-income earners. Individuals earning $400,000 and couples earning $450,000 will see their income taxes increase to 39.6 percent.  Chakarun says that in 2010 about 2,300 Idaho tax returns were in this high-income range.

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