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Bullock admin: GOP tax-cut bill still harms state treasury – but - KPAX.com | Continuous News | Missoula & Western Montana

Bullock admin: GOP tax-cut bill still harms state treasury – but not as much

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Gov. Steve Bullock Gov. Steve Bullock
HELENA -

The Bullock administration has revised downward its estimate on how the Republicans’ federal tax-cut bill impacts Montana’s state budget – but says it’s still a negative, because of changes in taxing business income.

The latest estimate, released this week, predicts Montana will lose $46 million of income-tax revenue starting next year, and about the same the following year.

Dan Dodds, a senior tax analyst for the state Department of Revenue, said Friday the full impact probably won’t be felt until fiscal 2019, which starts next July.

But he also said it’s possible the impact could be higher, if more taxpayers than expected take advantage of a new deduction for business income, thus reducing their taxable Montana income.

The tax bill, approved by Republicans in Congress and signed into law by President Trump last week, slashes corporate income taxes, cuts income-tax rates for individuals and creates a new deduction for business income that is reported as personal income tax.

Montana’s Department of Revenue estimated that Montanans will pay $750 million less in federal individual income taxes next year because of the bill – and that doesn’t include the reductions in corporate taxes.

Yet the agency says the bill will lead to lower Montana tax revenue in two significant ways:

  • Accelerated corporate deductions for equipment and other expenses will cost the state about $17 million next year in corporate state income taxes, because Montana uses federal rules to report corporate income. That amount will be about the same in calendar year 2019, but declines in following years.
  • A new provision allowing taxpayers to deduct 20 percent of business income, which is reported as personal income, will cost the state about $29 million in tax year 2018 and a similar amount in ensuing years.  

Congress tried to fix this problem by amending the bill, but the change does not work for Montana, Dodds said.

As many as 381,000 taxpayers who report business income on their personal income-tax returns could take the deduction, thus reducing their taxable income and tax revenue for the state, starting next year.

Republican supporters of the tax-cut bill have said the Revenue Department is ignoring a possible boost in economic activity, brought on by the tax cuts, that will offset any tax-revenue losses.

Yet Dodds said the agency has taken those and other factors into account, when running its model on how the new law will affect future state tax revenues.

Still, he acknowledged that the prediction is based on a model and that other unknown factors could influence the final outcome, up or down. For example, he said that if more people than expected find ways to take advantage of the business-tax deduction, state tax revenue could decline further.

Earlier this month, before the final version of the tax-cut bill was completed, Bullock administration officials had predicted it would reduce state revenue by as much as $80 million a year. They’ve adjusted that amount as Congress made changes and passed the final version.

About Mike Dennison

MTN Chief Political Reporter Mike Dennison joined MTN News in August 2015 after a 23-year career as a newspaper reporter covering Montana politics and state government. While some may believe that politics are boring, Mike firmly believes that's not the case if you tell the story with pizzazz and let people know why the story is important.
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