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The golden opportunity to lower income tax rates, boost competitiveness in Idaho and Montana

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INTRODUCTION

 

Over the past few years, Idaho lawmakers have twice lowered the state’s income tax rate. The latest legislative action passed last September brings the Gem State’s income tax to a flat rate of 5.8% for all income levels.

Like Idaho, Montana lowered its income tax from 6.9% to 6.75% in 2022. Governor Greg Gianforte says there’s room for an even larger reduction. He has proposed lowering the top state income tax rate to 5.9%.

The reduction action in both Montana and Idaho follows a national trend of lowering state income tax rates. One of the only states not following the trend happens to be neighboring Washington, providing a golden opportunity for policymakers in Idaho and Montana to take advantage of an extraordinary policy shift and solidify their state competitiveness for decades to come.

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  1. Both Idaho and Montana’s current personal income tax rates are relatively high                                                          

  2. Personal income tax revenue accounts for nearly half of state revenues in Idaho and nearly two-thirds in Montana                                                      

  3. Policymakers can tie personal income tax rates to excess revenue via triggers, lowering the burden for all workers                                                               

  4. In Idaho, every .1% of the state’s income tax accounts for roughly $40 million in revenue                                    

  5. Idaho and Montana stand to gain from Washington state decision to adopt a capital gains income tax                                          

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