Bullock Proposing Tax Increases for Top Earners

Dec 18, 2016

Bozeman Daily Chronicle - December 18, 2016

Are Gov. Steve Bullock’s proposed tax changes tax fairness or class warfare?

As part of his budget proposal for the next two years, Bullock called for changes in Montana tax laws that will bring in millions of dollars in new revenue.

One would add a new state income tax rate of 7.9 percent for those with Montana taxable incomes topping $500,000 a year. If passed, this would raise $37 million in additional revenue over the next two years.

Had the proposed change been in place in 2015, about 1,800 Montana taxpayers would have been affected, the state Revenue Department said.

In 2003, the Republican-controlled Legislature passed and GOP Gov. Judy Martz signed into law a major overhaul of Montana’s income taxes. The law compressed Montana’s 10 income brackets with a top marginal rate of 11 percent into about half of the brackets, with a top rate of 6.9 percent.

Critics say that and some other changes in this law have cost the state hundreds of millions of dollars in revenue.

Supporters of the 2003 law say it lowered Montana’s top marginal income tax rate and makes the tax code here more appealing to job creators.

“I don’t think it’s unreasonable to create a new tax bracket for someone making over $500,000,” Bullock told the Montana Taxpayers Association earlier this month. “It makes little sense that a person making minimum wage has the same effective tax rate as someone making $240 an hour.”

Bullock said the new tax bracket wouldn’t kick in until someone reached $500,000 in income. Before that, the tax on the first $500,000 would remain the same as that on a person making $25,000.

“But If you’re making over a $500,000, you can afford to pay a little bit more and you should,” the Democratic governor said. “I think that’s the fairness Montanans expect from our overall tax system.”

Republican legislative leaders have pronounced the proposal dead on arrival.

Incoming Senate Majority Leader Fred Thomas, R-Stevensville, dismissed Bullock’s proposal as “class warfare.”

Another Bullock proposal would no longer allow a state capital gains tax credit for taxpayers with a Montana adjusted gross income exceeding $1 million annually. This is estimated to generate $26 million in revenue over the two years.

The Revenue Department said 440 households would have lost their capital gains credit had this proposal been in place in 2015.

“As far as taxing rich people, if you believe as I do that these are the people who are the job creators, I am opposed to raising that tax,” she said. “It’s that same old argument of people paying their fair share. Every indication is that the people who make more money pay more than their fair share of taxes.”House Appropriations Committee Chairwoman Nancy Ballance, R-Hamilton, said she would oppose these proposals.

Last month, the Montana Budget and Policy Center, a left-leaning nonprofit group, praised Bullock’s tax proposals.

“We applaud Gov. Bullock’s commitment to working toward a tax system that is fair for all of us,” the group said. “For too long, our tax structure has disproportionately benefited the wealthiest, while leaving many of Montana’s working families struggling to make ends meet.”

Bullock also is proposing to increase the state tax on cigarettes by 50 cents a pack, to $2.20 a pack, and tax for the first time e-vapor cigarettes. This would raise $23.6 million over three years for the general fund and $30.4 million for special funds.

He is calling for doubling the state tax in wine by 27 cents per liter, to 54 cents, to raise $5 million for the general fund and $2.3 million for special funds over two years.

In another tax change, Bullock is proposing to impose a 6 percent consumption tax on medical marijuana, which would bring in an estimated $2.6 million in general fund revenue over the biennium.

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.