6/23/26 Mountain States Policy Center points to reductions in the Montana state income tax rate and subsequent increases in total revenue. The Montana state tax agency's report seems to confirm this, showing a 211% increase in income tax revenue. However, CPI increased 43% from January 2014 to May 2026. There was a real inflation-adjusted increase in revenue. Why?
The Laffer Curve explanation is that increased business activity because of incentives to business activity. If you get to get keep more of your income, you are likely to take more risks. This increases gross profits and therefore taxable income.
Another explanation is that high-income people from other states (California, Washington, Colorado) are increasing taxable income. Even if this explains it, it is only a slight variation on Laffer Curve. High-income people choose states where they get to keep more of their income. Hence the influx to states without state income tax such as Tennessee (headed there Friday to buy a new home), Wyoming, Texas, Florida, and Texas.
Unless every state decides to go full Democrat and enact state income taxes at the same rate, lowering state income tax rates seems like a straightforward to increase revenues. Of course, that assumes this is the goal not the semisocialist "fairness" (envy) concept.
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