Gianforte signs $1B Republican tax rebate, tax-cut package into law

Flanked by dozens of Republican lawmakers on the steps of the state Capitol, Gov. Greg Gianforte signed a tax cut, rebate and spending package totalling more than $1 billion Monday.

The eight-bill package, which provides short-term property and income tax rebates and also  cuts state income taxes on an ongoing basis, puts a major slice of the state’s estimated $2.5 billion budget surplus toward what the governor called “the largest tax cut in Montana history.”

The bills also cut the state’s business equipment tax, pay off $125 million of state debt, restructure the state’s corporate income tax, streamline capital gains taxes and put $100 million into a highway construction fund.

“These are policies that will improve our business climate, grow our economy, create jobs and increase opportunities for Montanans,” said Gianforte, a Republican.

In total, the package will provide $764 million in tax rebates and reduce state tax collections by roughly $150 million a year on a permanent basis, saving taxpayers about $300 million over the state’s next two-year budget period.

Individual taxpayers will be eligible for up to $1,250 in income tax rebates for their 2021 taxes and homeowners will be eligible for up to $1,000 in total property tax rebates for taxes paid in 2022 and 2023.

The governor’s office said Monday that the income tax rebates would be credited to taxpayers automatically and that details will be forthcoming from the state Department of Revenue about how homeowners should apply for the property tax rebates.

The permanent income tax cut reduces the state’s top-bracket marginal tax rate from 6.5% to 5.9%. Another provision in the income tax bill expands the state’s version of the federal Earned Income Tax Credit, which reduces taxes due from low- and moderate-income working families. The governor’s budget office says the income tax cut is expected to reduce state revenue by about $150 million a year, while the earned income tax provision is expected to cost the state about $11 million annually.

This year’s cut follows the cut Gianforte and the Legislature made in 2021, which reduced the top-bracket rate from the 6.9% rate that was in effect when he took office. For individual filers in 2024, the new 5.9% rate will apply to income earned in excess of $20,500.

Gianforte has argued that Montana needs to lower its income tax rates to remain economically competitive with neighboring states. 

“Montana has one of the highest income tax rates in the Rocky Mountain West and the fourteenth-highest in the country,” he said. “This is hard on middle-class families and small businesses. Higher taxes mean less take-home pay, less job creation, greater burden on hard-working Montanans and more of our kids leaving the state.”

Montana is one of five states in the U.S. without a statewide sales tax. The state’s overall tax climate was ranked this year by the Tax Foundation, a national think tank, as the fifth-best in the nation.

Democrats and progressive groups have criticized income tax cuts as providing disproportionate benefit to the state’s wealthiest residents, who have more taxable income in the top income brackets. 

“These bills will result in a significant cut to our tax base, which is risky, especially with economic uncertainty on the horizon,” Montana Budget & Policy Center Director of Research Rose Bender said in a press release co-signed by 17 other progressive advocacy organizations.

Democratic leaders have also criticized the timing of the rebate package, saying it should have been left until later in the session, when lawmakers have a better sense for the cost of other spending priorities such as housing affordability efforts and shoring up health care and prison systems.

In a joint statement Monday, House Minority Leader Kim Abbott, D-Helena, and Senate Minority Leader Pat Flowers, D-Belgrade, described the package as “reckless spending that disproportionately benefits the wealthiest Montanans.”

“In the continuing absence of any real plan from the GOP, Montana Democrats will keep fighting to fix the crises facing ordinary Montanans,” they added.

At Monday’s event, Gianforte called for the lawmakers assembled behind him to also pass the remainder of his budget proposal, citing specific provisions that would provide a child tax credit, an adoption tax credit, fix the “broken” state hospital and prison system, set aside money for housing-focused infrastructure and fill a disaster mitigation fund.

“Our fiscally responsible plan invests in a stronger future for Montana. Let’s get it done,” he said.

The eight bills signed March 13 are as follows:

House Bill 222 puts $284 million toward property tax rebate checks of as much as $1,000 for Montana homeowners — $500 for taxes paid in each of 2022 and 2023. The Montana Department of Revenue estimates about 312,000 households will be eligible.

House Bill 192 spends $480 million on income tax rebates of up to $1,250 per taxpayer, or $2,500 for spouses who file taxes jointly. The revenue department estimates the rebates will be available to an estimated 460,000 taxpayers who were full-time Montana residents in 2020 and 2021. 

House Bill 251 allocates $125 million to paying down some state debt, saving the state money on future interest payments.

House Bill 267 puts $100 million into a highway fund to let the state access matching federal funding.

House Bill 212 raises the exemption threshold for the state’s business equipment tax from $300,000 to $1 million. The revenue department estimates the tax cut will cost the state about $9 million a year. The bill will also backfill local government revenues reduced by the cut.

House Bill 221 streamlines the state’s capital gains tax code and cuts its effective rates. The revenue department estimates the bill will reduce state revenues by about $16 million a year.

Senate Bill 121 will reduce the state’s top-bracket income tax rate from 6.5% to 5.9% at an estimated cost of $150 million a year. It will also expand the state’s version of the federal Earned Income Tax Credit, directing about $11 million more annually toward lower-income working families.

Senate Bill 124, will adjust the state’s corporate income tax code to generally shift tax burden from companies with extensive in-state facilities and payroll onto e-commerce companies such as Amazon that sell into Montana with a comparatively light physical footprint. The revenue department estimates the bill will on net increase state revenues by about $16 million a year.