HELENA — Republican lawmakers on a tax committee advanced a pair of bills Tuesday to cut Montana’s top state income-tax rate – and the bills’ sponsor said they could both be enacted, with staggered effective dates.
Sen. Greg Hertz, R-Polson, said the goal is to not only reduce Montana’s top rate of 6.9 percent down to 6.5 percent, eventually, but also to simplify and overhaul the state’s income tax, creating only two brackets instead of six.
“We have one of the highest tax rates in the region,” he told MTN News Tuesday. “And we need to get that rate down, and that’s what these bills are intended to do over the next several years, to reduce our rate so we can be more competitive and attract more businesses to the state of Montana.”
The House Taxation Committee voted along party lines to endorse Senate bills 159 and 399, both sponsored by Hertz, sending them to the House floor.
Democrats on the panel voted against the bills, but are powerless to stop them.
Rep. Dave Fern, D-Whitefish, said SB399, which makes the bigger changes, hasn’t had enough time to be fully vetted and is too costly for the state treasury.
“I do think that tax-simplification is a really worthy goal,” he said. “But I’d rather see it as a revenue-neutral bill. This is just too much, too late (in the session).”
SB159 would cut Montana’s top income-tax rate from 6.9 percent to 6.75 percent, which is applied to all taxable state income above $18,700. If passed, it would take effect for the 2022 tax year.
It would reduce state income-tax revenue by $30 million a year, with most of the benefits flowing to wealthier taxpayers.
SB399 would cut the top rate further to 6.5 percent, for taxable income over $20,500 for a single person, and set one other rate of 4.7 percent, for income below that.
But it also would eliminate two dozen income-tax credits and tie state taxes to federal taxable income, which means as many as 50,000 additional Montanans would pay no state income taxes.
Hertz said if SB399 is adopted, it would take effect starting in 2024 – but could be moved up to 2023, if the 2023 Legislature chooses.
The staggered starting date is primarily to ensure that neither tax cut conflicts with provisions in the federal Covid relief bill passed last month. The federal bill prohibits using Covid funds to finance state tax cuts.
Hertz said the first tax-cut bill is fairly simple and can more easily be adjusted to conform with federal rules – if that becomes an issue.
Both bills are expected on the House floor later this week.