This report is an update to the 2024 report Idaho’s Recent String of Income Tax Cuts Jeopardizes Investments in Public Services.

The Idaho state government collects income taxes to fund important public services – such as quality public education, safe infrastructure, and bolstering public safety to keep our families, homes, and businesses safe. However, a string of income tax cuts approved by the Idaho State Legislature since 2021 have weakened Idaho’s revenue systems and limited the state’s ability to maintain support for schools and other vital public services. These changes also made the state’s tax system more regressive – meaning that Idahoans earning the lowest incomes pay the highest percentage of their incomes toward taxes.

How do income tax cuts impact Idaho’s economic stability?

Idaho lawmakers cut the income tax rate five times over the last five years, greatly reducing the amount of revenue going into the state’s General Fund. The General Fund is the main source of money for core public services like transportation, education, and public safety. From TY 2021 to TY 2025, Idaho lost $4 billion in revenue due to income tax cuts. The state is projected to lose an additional $1.3 billion annually beginning in TY 2025, resulting in a cumulative total of $4.5 billion in revenue loss over the next four years.¹ The annual loss of $1.3 billion is equivalent to 24 percent of the General Fund.²

These deep tax cuts will keep chipping away at Idaho’s revenue stream and result in long term consequences for the state. When the next recession hits the economy, a lack of revenue may force cuts to education and other important public services and resources. An example of how a recession could impact Idaho’s public education system can be found in the Center’s recent report highlighting how budget holdbacks made during times of economic hardship continue to negatively impact current school funding.  A recession could also prompt an increase in other taxes, such as sales and property taxes, which hit lower-income families and communities harder than wealthier ones.

How do income tax cuts impact Idaho families?

Everyone should benefit from the state’s tax system, and tax relief should be aimed towards those who need it the most to support their families and participate in the local economy. But Idaho’s recent string of broad-based income tax cuts does little to help families with low- to middle- incomes. The bulk of permanent income tax cut benefits flow instead to the wealthiest households and corporations, not individuals and families struggling to afford gas, groceries, and childcare.

Before 2021, Idaho had a progressive income tax rate that gradually increased as taxable income increased. With the tax cuts adopted over the past five years, however, the state has steadily flattened the income tax by reducing the number of income brackets from seven to one and lowering the top individual and corporate income tax rate from 6.9 to 5.3 percent. Idaho now has a “flat” income tax rate that charges the same tax rate to everyone.

This flattening of Idaho’s income tax ultimately creates a regressive tax structure for Idaho individuals and families, because there is no longer a progressive income tax structure to balance the regressive nature of sales and property taxes. Regressive taxes charge everyone the same rate, regardless of their ability to pay, resulting in those with lower incomes paying more of their share of income on taxation than those with higher incomes. See the “Tax Systems Explained” section for more.

During the 2025 Legislative Session, the Idaho Legislature cut the income tax for the fifth time. The five rounds of income tax cuts cumulatively reduced Idaho’s annual individual income tax collections by $983 million and annual corporate income tax collections by $289 million since 2020. While this change significantly reduced Idaho’s annual revenue by an estimated $1.3 billion, most Idaho households do not see a meaningful change in their tax bill. The top 20 percent of households- those with incomes of $146,000 and above – will receive 66 percent of the overall benefits. The remaining benefits will be spread out among the 80 percent of Idaho’s households whose incomes are below $146,000. The top one percent of income earners have received a $20,407 income tax cut on average. Families earning the median income receive only a $453 income tax cut on average.³

Tax Systems Explained

Tax systems are usually composed of progressive, regressive, and proportional taxes. Progressive tax systems take a larger percentage of income from high-income groups than low-income groups (ex. federal income tax). Regressive tax systems take a larger percentage of income from low-income groups than high-income groups (ex. sales and property tax). Usually, the combination of these taxes taken together, along with certain tax credits, results in taxpayers paying roughly the same percentage of their incomes in taxes, creating a proportional tax system. Idaho’s current tax system does not reflect that. When all the state’s taxes and tax credits are taken together, Idaho’s overall tax system is regressive.⁴

Sources

1. Institute on Taxation and Economic Policy analysis. ↩︎
2. $1.3 billion is 24 percent of actual 2024 General Fund revenues. See 2026 General Fund Revenue Book. ↩︎
3. Institute on Taxation and Economic Policy analysis. ↩︎
4. Carl Davis et. al. “Who Pays? 7th Edition.” Institute on Taxation and Economic Policy. January 9, 2024. https://itep.org/whopays/idaho-who-pays-7th-edition/ ↩︎