HELENA — If you earn $25,000 in annual taxable income – and about 40 percent of Montanans make that much, or less – Gov. Greg Gianforte’s income tax-cut proposal will give you a tax reduction of $9.
But if you make $100,000 in taxable income, that break goes up to $122.
And if you’re among the few fortunate Montanans who earn $1 million in taxable income, you’d get a reduction of $1,472.
But these impacts are from just one element of the new Republican governor’s tax-cut package.
His tax plans also include reduced property taxes for some businesses and lower-income homeowners – and, buried in the finer print of his budget, a $24 million, two-year increase in corporate income taxes.
A closer look at the package reveals the biggest direct beneficiaries: Wealthier individual income-taxpayers, about 4,100 small and mid-sized businesses and an as-yet-unknown number of lower-income property owners and renters.
Gianforte has pitched his tax plan as “getting Montana open for business,” and the state’s main business lobby generally likes what it sees.
“The more competitive you make Montana’s business tax climate, the more you’re going to attract that business investment,” said Bridger Mahlum of the Montana Chamber of Commerce.
Yet an advocate for lower- and moderate-income households in Montana said while the governor’s tax-cut plan may have some benefits for those earning less, the bulk of it goes to wealthier individuals and businesses.
“There are a number of taxes that are regressive, that you see lower- and moderate-income families paying a higher share of their income in those taxes,” said Heather O’Loughlin of the Montana Budget and Policy Center. “The governor is not looking at sizable cuts in those areas.”
The biggest-dollar reduction of in his tax plan is cutting Montana’s top marginal income-tax rate from 6.9% to 6.75%. When fully implemented, it would cost the state treasury an estimated $28 million a year.
When unveiling the proposal last week, Gianforte said Montana has the second-highest top marginal income-tax rate in the Rocky Mountains – just slightly less than Idaho’s 6.925%. Reducing it makes the state more attractive to investors, he said.
The reduction for most Montana taxpayers, however, is miniscule or non-existent.
About 45% of Montana taxpaying households don’t pay the top rate, so they would get no reduction. And for those earning up to about $60,000 a year, the annual tax break is $50 or less.
Higher-income taxpayers with large tax bills naturally get the biggest break. At $250,000 of taxable income, the reduction is $347; at $500,000, it’s $722; at $1.5 million it goes up to $2,222 and at $2 million of taxable income (a tiny sliver of Montana taxpayers), it’s almost $3,000.
To help cover the revenue loss from this cut, Gianforte is proposing to “modernize” Montana’s corporate income-tax structure, increasing that income by $24 million over the next two years.
Right now, multistate corporations in Montana pay income taxes based on a percentage of payroll, property and sales in the state.
Gianforte’s proposal would base the income tax solely on sales – which his office says not only brings in more revenue, but also encourages companies to invest more in payroll and property, to boost business.
The governor also is proposing another tax break on income taxes: For companies that bring long-term jobs to Montana, sales of employee-owned stock would be exempt from state capital-gains taxes.
This break wouldn’t be available until after the company has been operating here for at least five years.
The immediate reduction he’s offering businesses is an exemption on property taxes on business equipment. Any equipment valued up to $100,000 is already exempt; Gianforte wants to increase the exemption to $200,000, thus erasing the tax for another 4,100 businesses.
This change would cost the state treasury nearly $10 million over the next two years, as the state reimburses local governments for lost tax revenue.
Finally, Gianforte is proposing to reduce taxes for low- and moderate-income homeowners, and maybe even renters – but has not released a detailed plan.
His budget allots $3 million a year in state funds to finance this reduction. Administration officials say they’ll likely expand some or all of four existing programs that reduce property taxes for low-income homeowners and renters and disabled veterans who own homes.
Currently, about 40,000 Montanans benefit from these programs.
O’Loughlin of the Budget and Policy Center says her group looks forward to seeing the details on this proposal, because, for many lower-income families, property taxes are eating up a larger and larger chunk of their income.
Still, she said it’s a disappointingly small part of the overall tax-cut package.
“It appears that the governor is putting in a little more than one-tenth of the amount he’s putting into the income-tax cuts that will largely go to wealthier households,” O’Loughlin said. “It remains to be seen how he will structure that proposal, and how many Montanans would benefit from that.”