Analysis: Idaho tax cuts led to increase in state tax revenue

For years, we've been told a simple story about taxes: if you cut rates, government revenue will fall. It’s treated as economic gravity—inescapable and absolute.

But Idaho just ran a real-world experiment. And the results again don’t fit the narrative.

Over the past decade, Idaho lawmakers steadily reduced the state’s top income tax rate—from 7.4% in 2014 to a flat 5.3% today. Critics warned of budget shortfalls, underfunded services, and fiscal instability.

Instead, Idaho is collecting more revenue than ever.

In 2014, the state brought in about $1.16 billion in income tax revenue. By 2025, that number had climbed to roughly $2.26 billion. That’s a 95% increase—nearly double.

If tax cuts truly “starve government,” Idaho should be scrambling to make up lost revenue. It isn’t.

When confronted with this kind of data, opponents of tax relief often pivot to a different explanation: population growth.

Idaho, after all, has been one of the fastest-growing states in the country. More people means more taxpayers, and more taxpayers means more revenue.

That’s true—as far as it goes.

But it doesn’t explain what actually happened.

Between 2014 and 2025, Idaho’s population grew from about 1.63 million to just over 2.0 million—an increase of roughly 24%.

Revenue, meanwhile, grew by 95%.

Those numbers aren’t even close.

If population growth were the primary driver, revenue would have increased by something like 20–25%. Instead, it surged nearly four times faster. Even after accounting for population, revenue per person rose by about 57%.

So no—this isn’t just a story about more people. It’s a story about a much larger economy.

There’s an important distinction that often gets lost in tax debates. Government revenue isn’t determined by tax rates alone. It’s determined by tax rates and economic activity.

Idaho reduced the first part of that equation. But the second part—the size of the economy and the amount of taxable income—grew substantially.

More people moved to Idaho. More businesses expanded or relocated. Wages increased. Investment followed.

The result? A larger tax base—big enough to generate significantly more revenue even at lower rates.

This shouldn’t be controversial, but in policy debates, it often is.

Let’s be clear: Idaho’s experience doesn’t prove that every tax cut automatically increases revenue. Economics isn’t that simple, and pretending otherwise weakens the argument.

But it does prove something equally important—and far more relevant to current debates:

Tax cuts do not inherently reduce government revenue.

That claim, repeated endlessly in policy circles, simply doesn’t hold up here.

Idaho cut tax rates. Revenue didn’t fall. It didn’t stagnate. It grew dramatically—far outpacing population.

That’s not theory. That’s reality.

The real question isn’t whether lower tax rates mathematically reduce revenue in a vacuum. Of course they do.

The real question is what happens in the real world—where people respond, economies grow, and incentives matter.

Do lower rates encourage investment? Do they attract workers and businesses? Do they expand the tax base enough to offset the lower rate?

In Idaho’s case, the answer appears to be yes.

For years, policymakers have been told they must choose: either keep tax rates high to fund government, or cut taxes and accept declining revenue.

Idaho shows that’s a false choice.

Over the past decade, the state has delivered meaningful tax relief while seeing:

• Nearly double the revenue

• Strong per capita gains

• Sustained economic growth

That doesn’t mean tax cuts are a silver bullet. But it does mean the old talking point—that tax relief inevitably starves government—deserves to be retired.

Because in Idaho, the opposite happened. The state didn’t have to choose between tax relief and strong revenues. It got both.