HELENA — A Republican state senator has introduced a major rewrite of the state income tax, saying it greatly simplifies the tax, lowers the top rate and eliminates taxes for as many as 50,000 low-income Montanans.
Senate Bill 399, introduced late Friday, would create only two tax brackets, instead of the current seven, and set the rates at 4.7% and 6.5%. It also would get rid of more than two dozen tax credits and deductions.
“It’s pretty complicated to do your Montana tax return,” the sponsor, Sen. Greg Hertz of Polson, told MTN News Saturday. “This will just make things a little simpler for folks.
“It will save most people taxes and give us a little broader base and a fairer system, where we’re not picking winners and losers, with tax credits and deductions.”
Hertz also is the sponsor of Republican Gov. Greg Gianforte’s main state income-tax reduction bill, which, in its current form, lowers the top rate from 6.9% to 6.5%.
That bill’s current price-tag is about $80 million a year.
Hertz said SB399 would reduce income-tax revenue by about $45 million a year, and that the governor’s office is open to considering his approach.
“They said they would take a good, hard look at my tax-simplification bill, and if it met their expectations, that they would sign it, in lieu of Senate Bill 159,” he said.
SB159 is currently before the House Taxation Committee, having already passed the Senate. His new bill will be heard Thursday before the Senate Taxation Committee.
Senate Minority Leader Jill Cohenour, D-East Helena and a member of the Taxation Committee, told MTN News Monday that it's "pretty disappointing" that such a sweeping change is being heard this late in the session, without much time for people to evaluate its impacts.
"I think it's going to be pretty hard for any regular Montanans to be able to tell whether or not their tax liability is going to change for the better or worse," she said.
She noted that many of the tax credits that would be wiped out by SB399 are used by families to accomplish important goals, such as adopting a child, buying a home or installing energy-conservation measures at their house.
Hertz said SB399 would reduce taxes for most taxpayers, averaging $70 per household. Only one income group – those earning between $100,000 and $140,000 a year – would see a slight increase, he said, averaging $40 a year.
SB399 would set Montana taxable income at the same level as one’s taxable federal income – so, filers would get the benefit of the large, standard federal deductions when they file their state returns.
Those federal deductions currently are $12,400 for a single filer and $24,800 for a couple. So, if you made income anything less than that amount, you’d pay no state income taxes, under Hertz’s new bill.
“I don’t think we should be taxing those low-income folks,” he said. “They’re struggling enough in Montana, and anything we can do to help them, we should.”
Montana income-tax filers would not take a state deduction or exemption.
The bill also gets rid of more than two dozen tax credits -- which Hertz said complicate the form and benefit only a select few taxpayers.
Yet Cohenour noted that the bill maintains credits or deductions for some favored constituencies -- such as a deduction for long-term capital gains and a credit for those giving to scholarship organizations that help students at private religious schools.
"This continues to look to me like we're protecting a very few special interests," she said. "That's been the story of this whole legislative session -- that we're going to protect those very special interests and we're not going to be looking at every-day Montanans and what is going to help them."
Cohenour sponsored a bill that would reduce property taxes for lower- and middle-income homeowners and renters, but it was killed by Republicans.
Some of the credits eliminated in Hertz's SB399 would be for donations to Montana colleges, recycling, biodiesel facilities, oilseed crushing facilities, geothermal energy systems, dependent care assistance, energy conservation investments, conversions to alternative motor-vehicle fuel, “empowerment zones,” preservation of historic buildings and provision of “emergency lodging.”
SB399 also eliminates the current tax credit for capital-gains income, but replaces it by exempting 30% of long-term capital gains from taxation. Short-term capital gains would get no exemption.
Hertz said he tried to maintain some credits that are popular and get a lot of use, but eliminate those that “benefit a certain segment of Montanans.”