(The Center Square) – If you lower a state income tax rate, the state brings in far more income tax revenue.
At least that’s the finding of a new report from Mountain States Policy Center (MSPC) on Idaho’s income tax.
“This is something that those of us in the free-market movement have been talking about for years,” said Chris Cargill, founder and president of MSPC. “We have evidence from the past of the federal government doing this where the income tax would come down and then revenues would go up.”
In an interview with The Center Square, Cargill explained that Idaho ran a real-world experiment with income tax generation.
“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,” wrote Cargill in a post on MSPC. “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.”
Lowering taxes strengthens the economy, Cargill said.
“And the reason for that is because the more that you lower the income tax, the more workers that you’ll see come into the system, the better the economy does,” he told The Center Square. “And then as a result, more people start paying into income taxes.
“The easiest way to explain it to people is would you rather have one person paying 10%, or would you rather have three people paying 6%?,” he said. “What is going to be more? Of course, the three people paying 6% is going to be more than the one person paying 10%. And so that’s really the theory here that we tested.”
Annie Kucklick is a policy and research advisor for the Economic Opportunity Institute (EOI), a Seattle-based think tank that lobbies for progressive revenue.
“This means that the poorest amongst us are paying the highest percentage of their income towards taxes,” Kucklick said. “This is a small step. It’s a historic step towards rebalancing the regressive tax code that we have by asking the wealthy, the very wealthy, the top one percent of Washingtonians, to pay a little bit more.
As reported by The Center Square in an exclusive story Monday, the Washington attorney general and Democratic leaders plotted how to overturn the nearly century-old decision that banned income taxes in the state, writing they want to force the state Supreme Court to reconsider its 1933 decision, nearly 1,000 pages of public records obtained by The Center Square show.
As the court arguments play out and other challenges related to potential citizen referendums or initiatives move forward, Cargill said Washington would be wise to pay attention to Idaho’s income tax history and how lowering the rate has benefited the state.
“So, in 2014, they had an income tax rate of 7.4% effectively. It went to a flat rate of 5.3% starting last year. And so, Idaho has essentially lowered its rate by 2.1%… a huge amount just over the past 10 years,” Cargill said. “At the time of all of these reductions, we were hearing a lot from people that this was going to cause revenue to fall off a cliff, and we can’t afford tax cuts, and we’re going to be scrapping for pennies. But if you go back and look at the revenue since then, revenue has almost doubled. We’re not talking about any other tax. We’re just looking at the income tax. So the rate has come down in Idaho 2.1%, but the amount that Idaho is bringing in has increased by about 95%.
Cargill noted that while some of the income tax revenue is due to population growth, it does not proportionally equate to the large income tax gains.
“It doesn’t explain the entirety of it,” he added. “Idaho’s population has only grown about 24% in the past 10 to 12 years. But the income tax revenue has increased 95%. And so, to make that assumption that it’s just population, just doesn’t add up. There’s something else going on here.
“I think this kind of blows a hole in the theory that if you just lower the income tax or lower any tax, that all of a sudden government is going to be worse off. That is not the case. In fact, the revenue numbers show the opposite of that,” Cargill said.
