Fiscal contrast: Idaho curbs spending as Washington deficit climbs

(The Center Square) - Idaho recently closed the books on fiscal year 2026, ending in the black while rolling over approximately $250 million in cash balances to its general fund for next year, while its neighbor faces a growing deficit.

As reported by Mountain States Policy Center “things couldn’t be any different in neighboring Washington state. While Idaho took steps to right-size its budget while still providing tax relief, the Evergreen State has instead imposed tax increase after tax increase while recklessly overspending,” wrote Jason Mercier at MSPC in a recent column.

“The Idaho State Tax Commission issued more than $910 million in individual income tax refunds during the fiscal year — the largest amount ever returned in a single year. The milestone reflects Idaho's continued commitment to returning taxpayer dollars to Idahoans through Idaho’s historic tax relief efforts and efficient tax administration,” wrote Governor Brad Little in a July 17 press release.

Meanwhile, Washington officials project a revenue shortfall of nearly $500 million for the upcoming year, with the overall structural deficit for the 2027–2029 biennium estimated at upwards of $4.3 billion.

Little’s Budget Director Lori Wolff told The Center Square Idaho residents received the largest tax refund in state history this year.

“Almost a billion in tax free funds out to Idaho families, and our budget is still fine, and our economy is going strong,” said Wolff.

Idaho does have an income tax, but Wolff said they keep other taxes, including property taxes, lower in exchange.

“We do have an income tax, and individual income tax is one of the major sources of funding to our general fund," she said. "But we've done a lot to simplify our tax policy. We have a flat tax in Idaho. So, both corporations and individuals pay 5.3%. It’s predictable and it has simplified our tax code.”

Washington state’s new income tax is 9.9% on income above $1 million, or combined household income above that threshold, starting in 2028.

Voters will get to decide if they want to keep the tax or repeal it on the November ballot with Initiative 645. A lawsuit challenging the income tax’s constitutionality is also pending.

Due to those challenges, Governor Bob Ferguson recently instructed agency directors not to factor in revenue from the income tax in their upcoming budget projections.

“When you ask families what matters to them, rarely do we have Idahoans ask us to get rid of the income tax because it's not that burdensome," Wolff said.

"We at the state level try to find ways to invest even in our local economies and our local infrastructure needs, to try to reduce the pressure on property tax as well."

As reported by The Center Square, in the wake of the passage of the income tax, many business leaders have spoken out against Washington’s ever-changing tax policies and regulations.

“It's the predicted unpredictability we think we're going to see going forward and we've started that process to move as a result of it,” said Mike Senske, president and CEO of Pearson Packaging during an Association of Washington Business summit last week.

Senske said their Spokane company is making plans to move to Idaho.

At that same conference, former Democratic Governor Gary Locke told The Center Square he thinks “spending is out of control in Olympia.”

“They need much more discipline. They need to set priorities,” Locke said.

Former Governor Christine Gregoire, also a Democrat, said much the same earlier this year.

“I would suggest to you we don’t really have an income problem; we have a spending problem,” said Gregoire during as Association of Washington Business summit earlier this year.

Ferguson recently blamed threats to federal funding for adding to Washington's budgeting woes.

"The changes would also likely exacerbate the state’s budget challenges. With increased administrative burden, further unpredictability in federal reimbursements, at-will termination of grants mid-project, and potential loss of investment revenue for delayed repayments, these changes will increase the volatility from an already chaotic Trump Administration," the governor said in a press release.

Wolff said they are hearing from more businesses from Washington and other states looking to relocate in Idaho, with many pointing to the Gem state’s tax policies.

“At the end of the day, we want more money in their pockets. It's making it fair and predictable. And you know, that's really what good tax policy looks like.”