Revenue Raising Opportunities, Lost

Mar 28, 2019

In March, with less than 10 days before the April 1 transmittal deadline for revenue bills, the legislature saw a number of proposals that would raise revenue from a range of sources. Below is a summary of revenue bills that were heard, and which MBPC supported, in House and Senate tax committees during the week of March 25. HB 707, which would limit the capital gains income tax credit was heard in House tax committee. Under current law, taxpayers that make their money from investments pay a lower effective tax rate than Montanans earning their income from wage. A taxpayer receives a tax credit equal to 2 percent of income derived from capital gains (profit from the sale of investments, such as stock). This has the effect of lowering the tax rate on this type of income, compared to wages. For example, a taxpayer with capital gains income would see a top tax rate of 4.9 percent, compared to 6.9 percent for ordinary income. Montana is one of only nine states that gives a tax break on capital gains income. In 2017 alone, the capital gains tax break cost the state almost $50 million in lost revenue. HB 707 restores some tax fairness by eliminating the capital gains tax credit for high-wealth households (those with incomes in excess of $1 million annually). In other words, a millionaire would not receive the capital gains tax break and instead be paying the same top tax rate as someone who is earning their income from wages. While HB 707 did have bipartisan support in the committee, unfortunately, it died in committee on March 26, by a vote of 8-10. HB 697 also had a hearing in House tax. This proposal makes filing taxes easier for Montanans, ensures that someone earning minimum wage in Montana pays a lower tax rate than the wealthy, and helps the super-rich pay their fair share. In 2003, the legislature collapsed the income tax brackets, lowered the top tax rate from 11 percent to 6.9 percent, and eliminated the top tax brackets impacting higher-income households. Today, a Montana worker earning just over the minimum wage is paying the same top tax rate as someone with income over $500,000. In fact, when factoring in all state and local taxes, families living on lower or moderate incomes pay a higher share of income in taxes than the wealthiest 1 percent. HB 697 proposes to restore some fairness to our tax system with two top income tax brackets, on incomes above $250,000 and $500,000. See our report on the 2003 tax cuts that have cost our state hundreds of millions in lost revenue. On March 28, the House tax committee voted party-line, 7-11, killing the bill.  SB 339, which proposes an increase to liquor taxes, was heard in Senate tax committee. Montana has two taxes on liquor, the liquor license tax and liquor excise tax, which are both taxes that liquor stores pay on the retail price. The governor proposes increasing the liquor license tax from 10 percent to 13 percent and increasing the liquor excise tax from 16 percent to 20.8 percent. These increases are expected to raise $13.8 million in general fund revenue and $4.7 million in state special revenue over the 2021 biennium. SB 339 failed in committee on a tie vote, 6-6 on March 27. HB 650 proposes increasing liquor, beer and wine taxes by 10 percent. This is a modest proposal to increase excise taxes that have not been increased in over twenty years. These increases are expected to raise $4.9 million in general fund revenue and $2 million in state special revenue over the 2021 biennium. This bill also failed in committee, with a party-line vote of 7-11 on March 26. HB 691, which would eliminate the oil and gas tax holiday, was heard in House tax. This tax holiday, created in 1999 by the legislature, provided a tax break for oil and gas companies that lowers the taxation of oil and gas production during the most profitable period of extraction. At the time, proponents of the tax break claimed that it would encourage economic development in Montana’s resource-rich areas – a claim unsupported by the facts. In reality, oil and gas companies operate where there is oil and do not base their decisions on state taxes, which are just a small fraction of their total costs. This bill was expected to raise $8 million each biennium for communities impacted by oil and gas development and the development of a renewable resources trust fund. Eliminating the holiday is good policy and evidence continues to mount that repealing the oil and gas tax holiday would not harm, and may actually help, the Montana economy. HB 691 failed in committee on March 26 on a 13-5 vote. The one revenue bill passed by Senate tax committee was SB 360 which increased the tax on rental cars from 4 to 6 percent. SB 360 represents a modest increase to rental car taxes, which helps ensure we have sufficient revenue to stave off cuts to the programs that are vital to our communities. MBPC hopes the entire Senate will move this bill forward in the days ahead. MBPC is disappointed that the House and Senate tax committees were unable to advance most of these responsible revenue proposals. Responsible revenue policies are an important part of the equation to build a responsible budget to serve all Montanans, one that restores cuts to critical social services, continues funding for health care and education, and secures a healthy ending fund balance for the state. As we move forward in April and the remaining weeks of the legislative session, MBPC urges the legislature to continue to make the right choices for Montana.
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.