Comment: Compare tax choices of 3 states and watch what happens

By Jason Mercier / For The Herald

If there was a theme for the 2025 legislative sessions in our region, it was major tax changes.

On the negative side of the ledger are the historic tax increases rammed through in Washington state. On the positive side are the record tax cuts enacted in Idaho and Montana. Consider these regional headlines from the past month:

• “Idaho delivers largest income tax cut in state history, sending another $253 million back to Idahoans,” Idaho governor’s office.

• “Governor Gianforte Celebrates Largest Income Tax Cut in State History,” Montana.gov.

• “Legislature passes largest tax increase in state history,” Washington Roundtable.

As for Montana, House Bill 337 lowers the current 5.9 percent income tax rate to 5.65 percent in 2026 and then 5.4 percent in 2027. The new law also increases the number of Montanans eligible for the lower tax bracket of 4.7 percent and doubles the state’s earned income tax credit. Capital gains will also now be taxed at 4.1 percent. The total four-year savings for taxpayers are expected to be around $756 million.

Discussing this record tax relief in Montana, Gov. Greg Gianforte said: “As leaders elected to serve Montanans who sent us to Helena, we all want the same thing: to open the doors of greater opportunity so more Montanans can thrive, prosper, and achieve the American dream. Today, we’re doing just that. Today, we’re delivering the largest tax cut in Montana’s history; once again.”

Montana House Speaker Brandon Ler noted: “This is a historic day for the people of Montana. Standing here on the steps of the Capitol, I’m proud to say we are delivering on the largest income tax cut in the history of the state. This bill is a firm commitment to the conservative principles we all stand for. We said from the beginning that we wanted to build a tax system that was fairer, flatter, and more focused on growth and that’s what we’ve done.”

Even with this record tax cut, there is more work to be done in Montana. As noted by the governor: “The reality is, even after our historic tax cuts in 2021 and 2023, we still have the highest income tax rate in the region and one of the highest in the nation.”

For comparison, here are some of the current top regional income tax rates:

Montana, 5.9 percent reducing to 5.65 percent in 2026 and then 5.4 percent in 2027; Idaho, 5.3 percent (reduced this year); Utah, 4.55 percent; Colorado, 4.25 percent (temporary – capped at 4.4 percent); North Dakota, 2.5 percent; Nevada, South Dakota, Washington, Wyoming, no personal income tax (though Washington does have a standalone 7 percent to 9.9 percent capital gains income tax).

While this tax relief is fantastic news for the Treasure State and Gem State, things didn’t turn out so well for taxpayers in the Evergreen State.

Here is the joint statement from the Association of Washington Business, Bellevue Chamber of Commerce, Seattle Metropolitan Chamber of Commerce and Washington Roundtable in strong opposition to the passage of the largest tax increase in Washington state history: “We are deeply disappointed by the legislature’s decision to approve nearly $9.4 billion in state and $3 billion local, for a total of over $12 billion in tax increases; an unprecedented move that comes at the worst possible time for working families and local employers. As Washingtonians struggle with rising inflation, affordability challenges, and economic uncertainty, these massive tax hikes — as much as 400 percent in some sectors — will hit hard on small businesses and the communities they serve. Childcare providers, assisted living centers, repair shops, wholesale groceries, and other local retailers already operating on thin margins will now be faced with the choice to raise prices, cut jobs or close their doors.”

Thanks to the drastically different tax approaches of these three states, we’ll have a natural case study to see how the economic outlook of each one changes as a result of these tax decisions. If history is any guide, Idaho and Montana may soon be bestowing Washington lawmakers with their “Realtor of the Year” awards.

Jason Mercier is vice president and director of research for the Mountain States Policy Center.