Three income tax bills pass first hurdles— but none are what the governor ordered

Montana Gov. Greg Gianforte has made it clear that he wants the Legislature to pass income tax cuts for the third time since his election in 2020. 

This session, he wants to lower the state’s top tax rate — the rate most Montanans pay — by a full percentage point during the next two years. 

But the legislation he is backing — touted in his budget proposal last year, his State of the State address in January, and in multiple press conferences throughout the legislative session — has stalled in the Senate, while different proposals that take a narrower focus of lowering taxes for middle-income earners have received bipartisan support from lawmakers. 

The governor’s preferred proposal, Senate Bill 323, carried by Sen. Josh Kassmier, R-Fort Benton, had a hearing before the Senate Taxation Committee earlier this week. The bill would lower the top tax bracket (Montana has two brackets) from 5.9% to 5.4% next year, and down to 4.9% the following year. It would also expand the earned income tax credit from 10% to 15%.

 The bill was tabled in committee.

On Wednesday, Kassmier made a motion to blast the bill out of committee to the floor in order to let the entire Senate debate its merits, but the motion failed. 

“While I join all Montanans in being disappointed with the Senate’s vote yesterday, I am optimistic that by working together, we can get (income tax cuts) done for the Montanans who sent us here. And we must,” Gianforte said at a press conference on Thursday.

Meanwhile, two competing proposals that were also tabled in committees, Senate Bill 203, brought by Sen. Mike Yakawich, R-Billings, and Senate Bill 546, brought by Sen. Dave Fern, D-Whitefish, were blasted to the floor on Wednesday. 

Yakawich’s bill passed an initial Senate vote earlier this week 47-3 before the Senate Finance and Claims Committee tabled it. 

Sen. Greg Hertz, R-Polson, who leads the taxation committee, said he supported the “good bipartisan bill” coming back to the floor for a final vote, drawing contrasts to Kassmier’s bill.

“We know 323 was tabled. And the reason why? It started at the top,” Hertz said. “We’re starting at the bottom here. It’s a middle class tax cut. If you don’t want to bring this to the floor, you’re voting against a middle-class tax cut.”

Rather than cut the top tax bracket rate, SB 203 would expand the lower bracket — taxed at 4.7% — to include individuals making as much as $100,000. For married couples filing jointly the bracket delineation would be at $200,000, which Yakawich has said will cover up to the 90th percentile of earners. 

SB 203 passed the Senate in a final vote Thursday 31-19 and was sent to the House.

In convincing the Senate to hear SB 546 on the floor, Fern called it the “largest middle-class tax cut that’s being presented.”

“I have one of the best kept secrets in this chamber. This is great competition for middle class tax cuts. And I would love the opportunity to present this innovative, interesting, out of the box bill to all of you.”

The blast motion was successful, and the Senate debated the measure during Thursday’s session. 

Rather than tinker with the income tax rates, Fern’s proposal would create an income-based tax credit targeting exclusively the lower and middle income taxpayers. 

While he called the text a “mouthful,” Fern said the Middle Income Tax Reduction, MITR, would subtract a percentage of a filer’s tax liability, starting at 4.7% of taxable income and stepping down a percentage for additional income. 

Using a teacher filing jointly as an example, with a Montana taxable income of $70,000, Fern said those folks would receive about $930 as a tax credit.

“I suggest that MITR is the best bill that targets what I call a silent majority of our citizens and taxpayers. The MITR assures savings and spending so that dollars stay at home,” Fern said. “We’re not treating our middle class taxpayers, I think, with the respect they deserve.”

Speaking in opposition to the bill, Hertz said that lawmakers faced a decision over two bills that both cost $200 million a year. 

“(We) can’t have both of them. We’re going to have to choose one or the other. Although we might be able to do a hybrid method.”

He said Fern’s bill was too complicated by essentially creating “50 new tax brackets” due to the percentage-graded credit. He also expressed concern that it would make it harder for tax software companies to tailor their products for Montana, which presents a small portion of their customer base. 

“It doesn’t meet my simplification test,” he said. 

In support, Minority Leader Pat Flowers, D-Belgrade, said he was happy to see Democrats bring forth an income tax bill — which the party traditionally has opposed — specifically one so focused on lower-income earners. 

“For years, the income tax reduction proposals that have come here have done the same thing. They’ve primarily benefited taxpayers at the highest level,” Flowers said. “And who needs an income tax reduction? Is it somebody making $500,000 a year? No.”

Fern said that the bill could be amended to mesh with Yakawich’s, if the Legislature found that to be the best compromise on policy. 

The chamber passed the bill 28-21. 

The other major income tax cut bill moving through the Legislature is House Bill 337, introduced by Speaker of the House Brandon Ler, R-Savage.

Ler’s bill falls in between the Yakawich proposal and the governor’s plan, It contains both a slight reduction in the top tax rate from 5.9% to 5.4%, and an expansion of the lower, 4.7% bracket up to $70,000 for individual filers, and $100,000 for joint filers. 

Tax day is less than two weeks away, and on the House floor Monday, Ler said he’d heard from many folks who were getting hit on their taxes from last year. His bill, he said, would benefit everyone. 

“This bill is aimed to lowering all income tax brackets. This will help all Montanans whether you’re low income or high income,” Ler said. 

The measure passed along party lines. 

In his press conference Thursday, Gianforte said that proposals aimed at expanding the lower tax bracket “only benefit a portion of Montanans.”

“Carving out special groups and giving special breaks to special interests or special groups of Montanans is just not fair,” the governor said. 

Pushed by reporters whether he was concerned that higher income Montanans wouldn’t receive a tax cut, Gianforte reiterated that his ultimate goal was to create a single, flat-tax rate for everyone.
“It’s just basically fair,” he said. “You have a fairer system because everyone shares the burden based on their income level.”

He said that while his goal was to get a full 1% decrease in the top tax rate, “there can be honest debate about how much to reduce the top rate.”

He added that no lawmakers had approached him to discuss alternate tax plans. 

“If there’s a concern in the Legislature, let’s have a discussion,” he said. “None of those legislators have come to me to talk to me about an alternative proposal, so I would welcome the discussion. Let’s get around the table and figure this out for the people of Montana.”