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.
In Idaho, personal income taxes account for $2.319 billion of the state’s yearly revenue – or roughly $40 million per .1% of the 5.8% rate. Policymakers could design a trigger that would automatically reduce the 5.8% based on the amount of excess, sustained revenue reported in the state’s frequent revenue forecasts. For example: