Montana GOP advances income tax cuts for high earners, kills Dem proposals

HELENA — Republicans in the Montana Senate voted Tuesday to advance a trio of income tax cut bills backed by Gov. Greg Gianforte — and Republicans in the Senate and on the House Taxation Committee swatted two tax bills pitched by Democrats.

The Gianforte-backed bills, Senate Bill 159, Senate Bill 182 and Senate Bill 184, are part of the governor’s “Montana Comeback Plan,” the signature policy package he has touted as a way to bring the state economy more lucrative jobs. Each provides for current or future cuts to income taxes paid by wealthier Montanans, policies Republicans say will make the state a more attractive place for job creators to set up shop.

Democrats have argued that Gianforte’s focus on tax cuts for wealthier Montanans is misplaced, and that the state would be better served by adopting tax relief targeted at lower-income residents who’ve suffered more during the COVID-19 pandemic. Putting more money in the pockets of working-class Montanans, they say, will stimulate the economy from the bottom up as that money goes to basic goods like children’s clothing, gas and groceries.

Republicans, though, argue the state can get the most bang for its buck by lightening the tax burden at the top of the income spectrum, making it easier for existing Montana entrepreneurs to invest in expanding their operations and sending out-of-state capital the message that Montana is open for business.

“What would the average Montanan gain from this planned tax reduction? The opportunity to get a better-paying job,” said Sen. Greg Hertz, R-Polson, who is sponsoring two of the three Republican measures.

Democratic Minority Leader Jill Cohenour, D-East Helena, argued that the bills would put Montana on the path toward painful budget cuts that could undermine state-funded services.

“These bills hurt the real reason that people come here to Montana,” Cohenour said. “They come here to raise a family with a quality of life that’s second to none.”

SB 159 would cut the state income tax rate levied in Montana’s top tax bracket from 6.9% to 6.75%, reducing state tax collections by an estimated $30 million a year. Because Montana has a relatively flat income tax system, slightly more than half of Montana taxpayers have at least some of their income taxed at that rate, according to the state Department of Revenue. The taxable income threshold for the top bracket was $18,700 in 2020 — or roughly $30,000 in gross income before deductions and other tax adjustments.

Similarly, SB 182 would provide a mechanism to ratchet that top tax rate down further in the event the state runs a sustained budget surplus. Additionally, SB 184 would exempt people from paying capital gains taxes on stock owned in Montana-grown businesses.

Democrats worried that the automatic tax reductions built into SB 182 could put the Legislature in a situation where the state is forced into an artificial budget crunch, with Cohenour calling the measure “fiscally irresponsible.”

Senate Finance and Claims Chairman Ryan Osmundson, R-Buffalo, countered that the bill has been “well-vetted” and is written so it expires in 2025 unless renewed.

“We’ve put many precautions in place to make sure that the General Fund is very much protected,” Osmundson said. 

SB 159, SB 182 and SB 184 cleared second reading votes in the Senate Tuesday on largely party lines, passing by 34-16, 31-19 and 32-18, respectively. Barring a significant reversal, those margins indicate the bills will likely clear their final third-reading votes in the Senate later this week and then head to the House for further debate.

A fourth Senate bill that was introduced alongside the trio, Senate Bill 181, remains under consideration in the Senate Taxation Committee. Pitched as a way to modernize Montana’s corporate income tax code, it ran into opposition from telecommunications and railroad companies that said it would increase their taxes.

Two other Gianforte-backed tax measures that were initially introduced in the House also remain in process: House Bill 303, which exempts more businesses from the state business equipment tax, and House Bill 252, which provides tax credits for employer-funded trade education.

Tax measures backed by minority-party Democrats, however, haven’t gotten traction so far this session.

The party’s legislative leaders, for example, had talked up Senate Bill 10, which would have created a property tax “circuit breaker” that offered income tax credits to help lower-income Montanans pay their property taxes. The measure, sponsored by Cohenour, was voted down on party lines in the Senate Taxation Committee Feb. 12.

Cohenour made an unsuccessful effort Tuesday to overrule that committee vote with a so-called blast motion on the Senate floor. That motion failed on a 20-30 vote that fell largely along party lines.

A second Democratic measure, House Bill 424, got both its public introduction and a summary execution Tuesday. Sponsored by Rep. Emma Kerr-Carpenter, D-Billings, the bill would have added a high-end income tax bracket levying higher marginal rates on taxable incomes above $500,000 and used the proceeds to expand Montana’s earned income tax credit.

The state earned income tax credit, or EITC, parallels a similar federal tax credit that primarily benefits working families with children. The Montana credit is currently set at 3% of the federal credit and was claimed by 68,000 Montana taxpayers in 2019. Kerr-Carpenter’s bill would have scaled that percentage up to 10%, providing Montana recipients collectively about $12 million more each year.

“Adding this bracket ensures that those who are doing well, especially during these unprecedented economic upheavals, contribute their fair share to the well-being of their fellow Montanans,” Kerr-Carpenter said.

According to a fiscal analysis prepared by the Montana Department of Revenue, adding a $500,000 tax bracket with an 8.9% marginal rate would raise between $40 and $45 million a year in additional tax in revenue.

The bill attracted support from several progressive groups and opposition from the Montana Chamber of Commerce in its hearing before the House Taxation Committee Tuesday morning. It was tabled later in the morning on a 12-6 party lines vote.

“Ultimately, it’s important for this committee and the Legislature to consider, when you’re looking at legislation that has to do with taxation, the message the state is sending when it comes to what you’re telling those individuals who are positioned to create economic opportunity for others,” Montana Chamber of Commerce lobbyist Bridger Mahlum told the committee during the bill hearing, referencing “job creators, charitable contributors, [and] capital investors.”

“We hope that the Legislature will focus less on proposals that make state revenues more dependent on fewer taxpayers,” he added, “and instead achieve revenue generation by broadening the base.”