Income Taxes: We have options

Are you getting the idea that the Idaho Freedom Foundation (IFF) thinks government takes too much in taxes? Good, let’s keep going. By applying our 2026 Freedom and Family Agenda’s strong position on tax cuts, we have proposed eliminating the sales tax on groceries and have offered a plan to eradicate property taxes altogether. Both are practical and possible, and can be done simultaneously without shifting the burden onto other taxes or taxpayers.  

Now comes the income tax. The IFF boldly offers two paths for income tax cuts predicated on what the Legislature does with property taxes. First, if the Legislature refuses to eliminate property taxes, then Idaho should do like Mississippi and eliminate income taxes altogether. Second, if the Legislature adopts the plan to eliminate property taxes, then Idaho should continue the process of making the income tax truly flat and move it to a nice, round 5% rate. 

Income taxes in Idaho, recent history

For fiscal year 2026, Idaho is expected to collect $2,402,500,000 in income tax from households and $912,800,000 from corporations. Together, this $3,315,300,000 comprises 55.9% of Idaho state tax collections for government operations. That’s right, income taxes make up more than half of the state’s spending capacity for things like public education, health and welfare, transportation, and general government operations. 

Before continuing with IFF’s tax-cutting options, here’s a little recent history on the income tax in Idaho. Until 2017, Idaho maintained its highest income tax rate at 7.4% on household income and business income for the highest earning brackets. In 2022, the Legislature continued rate reductions and collapsed the tax brackets to one flat rate of 6% and then 5.8%. In 2025, House Bill 40 continued rate reductions down to the current 5.3%.  

Here are the recent numbers in millions of dollars:

Notice how the massive COVID federal funds affected income tax collections for 2021 through 2023 — especially when it came to corporations in the healthcare industry. Those years aside, also notice how, even though tax rates were reduced over those nine years, tax collections still increased from $1.865 billion in 2017 to $3.317 billion in 2025. 

Cutting tax rates does not necessarily reduce tax collections. Tax collections increased because of economic growth, and some of that growth is inspired by the strong incentives of keeping more of your income — that is, because of low tax rates. 

So, given the history and where Idaho stands now, here are the two paths forward for income tax reduction and/or elimination. 

Path 1: Keep property tax in place, but eliminate income taxes

The current income tax rate for both households and businesses is 5.3% of adjusted gross income. In other words, for every 0.1 percentage point of the income tax, the state brings in about $62.55 million in tax collections. Just as Mississippi did, Idaho could put a plan together to decrease the income tax incrementally over the next 5 to 10 years until the rate reaches zero. 

The beauty of the plan is that the natural growth in sales taxes, and other taxes and fees, could offset the lower income tax collections. Of course, the plan requires spending restraint by the Legislature and the governor, just as all tax-cutting proposals do. Yeah, it’s a long shot, but we’re saying there’s a chance. 

Passing a law that cuts the income tax rate by 0.6 percentage points per year for nine years would make Idaho a zero-income-tax state by 2035. Every dollar of income earned by households and businesses would be free of taxation for the income’s sake. Sales and commerce would be soaring, and therefore sales tax collections would undoubtedly be soaring too. The government will not starve. All in all, it is a huge win for Idaho.

Path 2: If property taxes are eliminated, still cut income taxes

As mentioned in Path 1 above, for every 0.1 percentage point of the income tax rate, the state brings in about $62.55 million in tax collections. If property taxes are eliminated, it makes sense to maintain Idaho government obligations with a simple, low income tax rate, along with the sales taxes still in place. So, an income tax that generates enough collections for the Idaho state government, but also maintains strong incentives for economic growth by households and businesses keeping more of their incomes.

The plan in this case would be to cut the income tax rate to 5.0% flat, a trade-off of, at most, $187 million less in collections annually. But the drop would likely be smaller than that amount. Lower tax rates indeed incentivize more income earning. So tax collections may not suffer much at all (see how collections increased in years 2017 through 2025 above). 

Again, one big win is how the natural growth in sales taxes and income generation could offset the lower income tax rate. And, remember the plan requires spending restraint by the Legislature and the governor — not a bad thing either. 

Conclusion: Cut Idaho taxes!

There you have it. The Idaho Freedom Foundation is leading the way on tax-cutting policy. With your help, we can repeal the grocery tax, eliminate property taxes, and significantly cut income taxes. The possibilities of growth and happiness are endless. Idaho could and should be the first state in the nation to accomplish all three. Let’s go, Idaho!