The race to lower state income tax rates
September seems like a long time ago. That’s when Idaho lawmakers approved a dramatic change in the state’s income tax – flattening the rate to 5.8%.
The move earned widespread praise, not only by our organization but also by voters who overwhelmingly approved an advisory question on the November ballot asking if they supported the move.
But Idaho’s victory may soon be overshadowed. Earlier this week, we wrote about Montana’s move to lower its state income tax to about the same rate as Idaho’s.
Today, we learn that Utah lawmakers are also considering using part of their surplus to lower the state income tax.
The difference, of course, is that Utah’s rate (at 4.8%) is already lower than Idaho’s or Montana’s.
Arizona earlier this year moved its income tax rate to 2.5%.
It is clear, if Idaho and Montana are going to remain competitive (especially in the west), they need to consider further lowering their income tax rates, which are now relatively high.
We have previously written about an idea to tie the income tax rate to revenue growth. This pro-growth policy would trigger automatic reductions in the rate so long as excess revenue is consistent.
One thing is clear: Idaho and Montana lawmakers shouldn’t be content with state income tax rates near 6.0%. They should continue to look at ways to lower the burden.