House committee approves amendment increasing income tax cuts

(Daily Montanan) A House panel on Friday approved and expanded a bill from the governor’s office to cut the top income tax rate, more than doubling the likely cost of the cut to state revenues.

The vote came as the committee considered three of the governor’s flagship tax cut proposals, though the House Taxation Committee ultimately decided to postpone its decision on a separate GOP income tax cut.

The committee passed an amendment from Rep. Rhonda Knudsen, R-Culbertson, to Senate Bill 159 that brings the tax rate for income above $18,500 to 6.5%. As originally written and passed in the Senate, the bill decreased that rate from 6.9% to 6.75%.

Knudsen told the committee that her constituents would only earn an average of $40 from the original tax cut plan, a complaint that echos some concerns from opponents of the bill, one of several tax cut bills brought by Gov. Greg Gianforte, a Republican.

But instead of opposing the income tax cut itself, Knudsen’s solution was to deepen the cut, something she said she did with the sign-off of the bill’s sponsor, Sen. Greg Hertz, R-Polson, and the governor’s office.

“I don’t want to offer, we’re gonna give you $40,” Knudsen said. “I talked to the budget director, I talked to the governor — can we just stretch that?”

In a press conference Friday, Gianforte would not specifically address whether he discussed the amendment with Knudsen, and said that he would consider all bills that come across his desk — his standard response to questions from the press about pending legislation.

“These bills go through a circuitous process in the legislature,” Gianforte said. “We propose to cut from 6.9% to 6.75%. The parameters are very simple: We can’t cut essential services. We need to balance the budget. And within those parameters we want to let Montanans keep as much of the fruits of their labor.”

The amendment passed on partisan lines. Democrats said they were sympathetic to the idea of attempting to counteract some of the regressiveness of the cut, but remained opposed to the bill itself.

“I totally sympathize with the analysis you’ve done,” said Rep. Dave Fern, D-Whitefish. “One of the problems we saw with a cut from the top is it’s extremely disproportional. This is a very expensive method to reach the regular folks.”

The original version of the bill would cost the state around $30 million a year once fully implemented. A fiscal note for the amended version hasn’t yet been prepared, but Knudsen said she believes the cost of the deeper tax cut could double, even as the state confronts a structural imbalance.

In fact, as the original bill called for a 0.15 percent point cut to the top rate, and the amendment calls for 0.25 percent point cut to the already lowered rate of 6.75%, the cost to the state could be more than double $30 million.

SB159 will likely go to the House floor next week.

The committee on Friday also passed SB184, another Gianforte-backed bill to exempt certain profits from the sale of stock in Montana companies from the capital gains tax. However, it decided not to take action on SB182, an intricate proposal to make automatic tax cuts if certain conditions are met and special funds are topped off.

In the broad strokes, the bill creates a tax reduction fund to help finance a series of triggered cuts to the top income tax rate if revenue goals are met. The proposal was heavily amended in the Senate to change deposit rules for the tax reduction fund and remove language pegging the cuts to a multi-year estimate of economic growth, instead hinging the cuts on the legislature’s own revenue estimate as defined in its spending bill.

But what caused the committee to balk on the trigger bill until next week was confusion on whether the bill would retain language shielding services for disabled and elderly Montanans under the Department of Public Health and Human Services from automatic cuts that the governor has the authority to make to balance the budget.

That section was also added in the Senate — should it become law, more than half of the state’s expenditures would be off limits should the governor need to make cuts, which he has authority to do under state law. The governor’s budget director, Kurt Alme, and the bill’s sponsor, Hertz, have asked the House to remove that language in order to free up the executive to make cuts.

In initial debate on the bill, representatives from the disability services community were some of the most fervent opponents, warning that triggered tax cuts would inevitably mean cuts to services within DPHHS.

House Appropriations Chair Llew Jones, R-Conrad, requested the amendment to remove protections for disability services. The amendment also removes all mention of the governor’s ability to make automatic cuts from code. Republicans on the committee said they were under the impression that this was because a separate bill, HB330, also sponsored by Jones, would restore that authority. Jones, who has spent most of Friday in the House Appropriations Committee as it works through the Legislature’s spending plan, could not be reached for comment.

Regardless, confusion over how the trigger bill interacts with HB330 and the substance of the bill’s prior amendments led lawmakers on the House Taxation Committee to hold off on voting on the bill until next week.

Democrats have been pushing their own tax proposals, namely a pair of similar bills to expand the state’s earned income tax credit contribution. An initial proposal that would have raised the top income tax rate and expanded the state’s earned income tax credit to 10% of the federal credit was tabled earlier in the session. But Rep. Emma Kerr-Carpenter, D-Billings, that bill’s sponsor, brought a separate piece of legislation that increases the state’s EITC contribution without touching the tax rate.

Kerr-Carpenter said the increased rate would equal about $12 million back to taxpayers each year. She said that she understood most opposition to her initial bill to be based on the increased tax rate, not the greater EITC contribution, so she hopes to see the bill move next week.

“We all understand that these are unprecedented times and people are really hurting, and so this is a way that we can really help our communities,” Kerr-Carpenter said in a press conference this week.