The Montana Department of Revenue located at 340 Last Chance Gulch in Helena, Montana (Photo by Darrell Ehrlick of the Daily Montanan).
The middle class is often a forgotten segment of the population, says Sen. Mike Yakawich, a Billings Republican.
Instead, policy often focuses on the very affluent or “those who unfortunately don’t have a lot.”
“But that middle class, we have to let them know we love them, we care about them, we want to help them,” Yakawich said in a conversation with Senate President Matt Regier on the Montana Majority Report podcast on Tuesday.
Regier, a Kalispell Republican, requested Senate Bill 203, which Yakawich is carrying through the chamber, to adjust income tax brackets in the state in a way that prioritizes middle-class Montanans.
The bill is just one aimed at revising income tax rates working its way through the Legislature. Two measures, brought by GOP leadership, focus on giving cuts to middle-class earners, while Montana’s Republican governor continues to push for a larger, top-down approach.
Yakawich told the Senate Taxation Committee earlier this month that he characterizes his bill as the “millennial bill,” aimed at young professionals in the state. He has five kids of his own, four of whom are married, with substantial, six-figure household incomes.
“When I was their age, that was a lot of money,” Yakawich said. “Now, that’s not a lot of money for someone who has children, who starts looking at (buying) a home.”
Montana currently has two income tax brackets — one at 4.7% and one at 5.9% — which split at roughly $21,000 for an individual filer. The state used to have a six-bracket marginal tax system until the Legislature condensed it during the 2021 session.
SB 203 would expand the lower bracket to comprise individuals making up to $100,000 — covering up to the 90th percentile of earners, according to Yakawich. For married couples filing jointly the bracket delineation would be at $200,000.
The tax cut would result in between $56 and $616 in savings for individuals in the 60th through 90th percentiles, according to data from the Legislative Fiscal Division.
“That can cover a lot of diapers, it can cover a lot of costs for families who are growing and struggling and trying to make it,” Yakawich said. “It’s important for us here in Montana to focus on those young couples, especially, who are really striving to make ends meet and be successful, have a good job and pay their taxes.”
According to the bill’s fiscal note, the state would receive roughly $250 million less from taxpayers annually by 2029.
“The intent is to have the best bill for the state of Montana, for our citizens,” Yakawich told the committee, acknowledging the other efforts to revise income tax rules. “This is one effort.”
Gianforte’s approach
Republican Gov. Greg Gianforte has a different approach to income taxes — fewer and lower is good, but none might be best.
For months since Montanans reelected Gianforte to a second term, the governor has outlined his goal to enact the largest income tax cut in Montana history, building on top of the work the state had done during his first four years in office. The governor had previously touted ushering in a combined $1 billion in income and property tax relief after the last legislative session.
“We’ve lowered the rate that most Montana taxpayers pay from 6.9% to 5.9% but there’s more we can and should do,” Gianforte said at a press conference last week. “We must continue reducing the tax that most Montanans pay, and we must continue to flatten our taxes.”
The governor’s tax plan, which is still in draft form, would lower the top income tax rate by half a percentage point each of the next two years. By the next biennium, the state’s two brackets would be 4.7% and 4.9% — one step away from a flat tax rate that all Montanans pay.
That’s the governor’s ultimate goal, which he said would give Montanans “greater certainty into the future.”
“Let’s be honest about what the income tax is — it’s a tax on work. It’s a tax on the fruits of their labor. We shouldn’t tax work more than we have to,” Gianforte said at a Jan. 28 press conference. “By reducing the income tax, hard working Montanans will keep more of what they work so hard to earn.”
At that press conference, which was conducted with Grover Norquist, president of Americans for Tax Reform, Gianforte compared Montana to nearby states in the Mountain region.
Of those states, Wyoming, Nevada and South Dakota have no income tax, while Idaho, Utah, Colorado and Arizona all have a single, flat income tax rate. And out of the latter states, the tax rate ranges from 2.5% to Idaho’s 5.8%. However, Montana is one of four states in the country without a sales tax — every bordering state has one, with North Dakota’s the highest at more than 7%.
“Montanans are losing out,” Gianforte said. “They’re losing out on keeping more of what they earn, and they’re losing out on the opportunities that come from businesses of all sizes.”
Norquist, who for decades has championed a pledge among national Republicans to oppose any new taxes, said that moving toward a flat-tax rate shows potential investors and business owners that Montana has a policy of cutting taxes, and they are less likely to be “badly surprised this year, next year, or 10 years from now,” with a rate hike. He also touted the states that had done away with income tax altogether, and the growing number of lawmakers who supported heading in that direction.
Gianforte’s plan would be the “the largest income tax cut in state history,” with $850 million in permanent tax relief, according to the governor’s office.
Legislative fiscal analysts estimate the tax policy changes would reduce general fund revenue collections by $398 million in the 2027 biennium. But the Governor said he isn’t worried about future impacts to the state’s budget, saying that under his administration, the state has not grown spending while GDP has increased — leading to both structural and one-time surpluses.
“We’re not cutting anything. We are looking for efficiency opportunities, but we’ve fully funded essential services,” he said.
However, the bulk of the tax cuts — in terms of actual dollars — would be implemented among the state’s highest earners.
An analysis by the Montana Budget and Policy Center indicates that the wealthiest 1% of Montanans would see roughly $10,000 in tax breaks under the policy, while individuals making $50,000 or less would receive less than $100.
Gianforte said his proposal to lower the top tax rate, combined with expanding the earned income tax credit, is the only proposal that would reduce taxes for Montanans at every income level, but he will look at any income tax reform that passes the Legislature.
“Ultimately, there’s different routes to get to a flat tax at a lower rate, and we’ll consider those other bills if they get to my desk,” Gianforte said.
One other GOP proposal
One other proposal that got a committee hearing last week was House Bill 337, brought by Speaker of the House Brandon Ler, R-Savage.
Ler’s bill took more of a middle ground approach. It proposed raising the lower tax bracket — the 4.7% rate — to $70,000 for individual filers, while also lowering the top rate down to 5.65%
The measure was tabled in the House Taxation Committee on Tuesday in a 20-1 vote.