On Monday, Governor Greg Gianforte signed a comprehensive tax cut, rebate, and spending package worth over $1 billion, accompanied by numerous Republican lawmakers, at the state Capitol steps.
The governor of Montana has proposed an eight-bill package that aims to utilize a significant portion of the state’s $2.5 billion budget surplus. This package includes short-term property and income tax rebates, as well as long-term reductions in state income taxes. If implemented, it would result in the largest tax cut in the history of Montana.
In addition to reducing the state’s business equipment tax, the bills will allocate $125 million towards paying off state debt, revamp the state’s corporate income tax structure, simplify capital gains taxes, and contribute $100 million to a highway construction fund.
Gianforte, a Republican, expressed that these policies aim to enhance our business climate, stimulate economic growth, generate employment, and expand opportunities for the people of Montana.
The package will consist of $764 million in tax rebates, resulting in a permanent reduction of approximately $150 million in state tax collections each year. This will ultimately save taxpayers around $300 million over the next two-year budget period of the state.
For their 2021 taxes, individual taxpayers can qualify for income tax rebates of up to $1,250. Additionally, homeowners can receive a total property tax rebate of up to $1,000 for taxes paid in both 2022 and 2023.
On Monday, the governor’s office announced that taxpayers would receive automatic credits for income tax rebates. Further information regarding the process for homeowners to apply for property tax rebates will be provided by the state Department of Revenue.
The state’s highest tax rate will be reduced from 6.5% to 5.9% due to the permanent income tax cut. Additionally, the income tax bill includes a provision that will extend the state’s Earned Income Tax Credit, resulting in reduced taxes for low- and moderate-income working families. The governor’s budget office estimates that the income tax cut will lead to a yearly decrease in state revenue of around $150 million, while the earned income tax provision will cost the state approximately $11 million per year.
The cut made this year continues the reduction made by Gianforte and the Legislature in 2021. The previous top-bracket rate of 6.9% has been lowered. Starting in 2024, individual filers will be subject to a new rate of 5.9% for income exceeding $20,500.
Gianforte contends that in order to maintain economic competitiveness with neighboring states, Montana should decrease its income tax rates.
He stated that Montana possesses one of the most elevated income tax rates in the Rocky Mountain West region and ranks fourteenth in the nation. This situation puts a strain on both middle-class households and small enterprises. Increased taxes result in reduced take-home income, limited job opportunities, increased hardships for diligent Montanans, and a higher number of young individuals migrating out of the state.
Montana is one of five states in the U.S. without a statewide sales tax. The state’s overall tax climate was ranked this year by the Tax Foundation, a national think tank, as the fifth-best in the nation.
Income tax cuts have faced criticism from Democrats and progressive groups due to the perception that they primarily benefit the wealthiest residents of the state, who possess higher amounts of taxable income in the top income brackets.
In a press release co-signed by 17 other progressive advocacy organizations, Montana Budget & Policy Center Director of Research Rose Bender expressed concern about the potential risks associated with these bills. She emphasized that they could lead to a substantial reduction in our tax base, a particularly risky move given the economic uncertainty on the horizon.
Critics, including Democratic leaders, have expressed their disapproval of the timing of the rebate package. They argue that it would have been more appropriate to address it later in the session once lawmakers have a clearer understanding of the expenses associated with other pressing matters, like housing affordability initiatives and the improvement of healthcare and prison systems.
In a joint statement Monday, House Minority Leader Kim Abbott, D-Helena, and Senate Minority Leader Pat Flowers, D-Belgrade, described the package as “reckless spending that disproportionately benefits the wealthiest Montanans.”
They added that, as the GOP still lacks a concrete plan, Montana Democrats will persist in their efforts to address the challenges that regular Montanans are currently facing.
At Monday’s event, Gianforte called for the lawmakers assembled behind him to also pass the remainder of his budget proposal, citing specific provisions that would provide a child tax credit, an adoption tax credit, fix the “broken” state hospital and prison system, set aside money for housing-focused infrastructure and fill a disaster mitigation fund.
He stated that our plan, which prioritizes fiscal responsibility, aims to invest in a more robust future for Montana. It’s time to take action and make it happen.
On March 13, eight bills were signed, listed below:
- House Bill 222 puts $284 million toward property tax rebate checks of as much as $1,000 for Montana homeowners — $500 for taxes paid in each of 2022 and 2023. The Montana Department of Revenue estimates about 312,000 households will be eligible.
- House Bill 192 spends $480 million on income tax rebates of up to $1,250 per taxpayer, or $2,500 for spouses who file taxes jointly. The revenue department estimates the rebates will be available to an estimated 460,000 taxpayers who were full-time Montana residents in 2020 and 2021.
- House Bill 251 allocates $125 million to paying down some state debt, saving the state money on future interest payments.
- House Bill 267 puts $100 million into a highway fund to let the state access matching federal funding.
- House Bill 212 raises the exemption threshold for the state’s business equipment tax from $300,000 to $1 million. The revenue department estimates the tax cut will cost the state about $9 million a year. The bill will also backfill local government revenues reduced by the cut.
- House Bill 221 streamlines the state’s capital gains tax code and cuts its effective rates. The revenue department estimates the bill will reduce state revenues by about $16 million a year.
- Senate Bill 121 will reduce the state’s top-bracket income tax rate from 6.5% to 5.9% at an estimated cost of $150 million a year. It will also expand the state’s version of the federal Earned Income Tax Credit, directing about $11 million more annually toward lower-income working families.
- Senate Bill 124, will adjust the state’s corporate income tax code to generally shift tax burden from companies with extensive in-state facilities and payroll onto e-commerce companies such as Amazon that sell into Montana with a comparatively light physical footprint. The revenue department estimates the bill will on net increase state revenues by about $16 million a year.
