Montana’s earned income tax credit looks to receive a boost

Mar 18, 2021

Daily Montanan Legislative Democrats have revived a proposal to boost the amount of cash that Montanans get from the state earned income tax credit, removing an increase on taxes for top-earners that stymied the progress of a previous version of the bill. Like that previous bill, which failed to make it out of the House Taxation Committee, House Bill 631 would increase the state EITC from 3 percent of the a filer’s federal payout from the anti-poverty program to 10 percent. This would mean an additional $12 million a year going back to Montana citizens (and out of state revenues). “The bill is about putting more money into the pockets of Montana’s working families,” said sponsoring Rep. Emma Kerr-Carpenter, D-Billings, at a Thursday hearing of the House Taxation Committee. The state Legislature created Montana’s EITC program in 2017, pegging the credit at 3 percent of the federal equivalent. In 2019, a year 67,000 Montanans received the EITC, the average filer received $2,476 from their U.S. credit, according to the National Conference of State Legislatures, so a Montanan who received that amount would receive an additional $74. Filers must work to receive the EITC (hence “earned income”), and the payout scales up as they make more before it begins to phase out above a certain level. One proponent, S.J. Howell with Montana Women Vote, said people who receive the state and federal credit use the money to pay things like utility and cell-phone bills, or recirculate the cash in their communities. One member of her organization used the money multiple years in a row to pay for her daughter’s braces, Howell said. Between the pandemic and an unprecedented windfall of federal aid dollars, Kerr-Carpenter, Howell and others said it’s time to increase the state’s match to 10 percent — meaning that a filer who made $74 from Montana’s EITC in 2019 would now earn almost $250. “As the state is considering investments to make, the EITC is absolutely an investment that matters,” Howell said. “An investment that makes direct, meaningful differences in peoples’ lives.” Kerr-Carpenter’s previous attempt at increasing the state EITC, HB424, made the same changes to the credit and also created a top tax bracket for people who earn more than $500,000, which would help offset the cost. That was a non-starter for Republicans who have made cutting the top tax rate a focus of the session, and the bill died in committee. But this version has earned a warmer welcome, Kerr-Carpenter said. Several Republicans have signed on as co-sponsors, including Reps. Greg Frazer, Josh Kassmier, Frank Garner and Larry Brewster, giving the minority a sense of cautious optimism over the bill’s future. One possible wrinkle is a provision in the American Rescue Plan Act, the recent congressional COVID-19 aid bill, preventing states from using the money to offset tax cuts. Several Republican attorneys general, including Montana’s Austin Knudsen, have threatened to take legal action over that section, and GOP lawmakers in Helena aren’t particularly worried about how the section will affect their plans to cut the income tax. Kerr-Carpenter, however, said she’s not sure what the ARPA rules will mean for her bill. This open question came up in committee Thursday. “We would certainly ask that the committee balance this proposal against continued budgetary needs, and consider that it is under the federal limitations of the ARPA,” said Heather O’Loughlin with the Montana Budget and Policy Center. The committee did not take action on the bill Thursday.
Montana Budget & Policy Center

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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.