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State Dems Warn of Federal Tax Plan’s Impacts on Montana’s Budget

Minority leaders and Gov. Bullock worry that tax reform bill will affect budget

Gov. Steve Bullock and Montana Democrats say the Republican bill to reform the nation’s tax system could have devastating impacts on the state’s budget, while local GOP lawmakers hail the final measure as a success.

In a letter earlier this month to Montana’s congressional delegation, Bullock urged U.S. Sens. Steve Daines, a Republican, and Democrat Jon Tester, as well as Republican Rep. Greg Gianforte, to ensure the Tax Cuts and Jobs Act of 2017 does not inflict harm on Montana’s budget. With its passage last week, Democrats said the outlook could be grim.

If revenues continue to decline under the new tax plan, Democratic lawmakers said, it could lead to further cuts in the future as the state struggles to maintain a balanced budget.

The tax package Congress sent this week to President Donald Trump will cut government revenues by $135 billion in 2018, followed by an uptick to $280 billion in 2019, according to the Joint Committee on Taxation. The tax reform measure is projected to increase the debt by $1.5 trillion over the next decade.

Citing estimates from the Montana Department of Revenue, Bullock said changes to both federal corporate and individual income taxes would reduce revenues in the state’s general fund by $122 million per year, or $244 million over the biennium.

“The Act disproportionately favors the wealthiest Americans and corporations at the expense of Montana workers and families. Several provisions would wreak havoc on our state budget,” Bullock wrote.

Bullock expressed particular concern over how the Senate bill unfairly treats people who earn their income through so-called pass-through businesses, such as sole proprietorships, partnerships, limited liability companies, and S-corporations.

But Montana Senate Majority Leader Fred Thomas, R-Stevens, said the final version of the bill sweetens tax cuts for pass-through businesses, which do not pay corporate income tax, instead reporting business income as personal income. Those include small businesses and startups, as well as mining, oil, lumber, and construction companies.

“Senator Daines helped change the legislation so that it would not have such an impact on Montana businesses,” Thomas said. “I am delighted that this legislation passed. It will make America globally competitive again. Our economy is going to do very well in the foreseeable future.”

In a memo, Don Dodds, a senior economist who reviewed the tax plan for the state, told Montana Department of Revenue Director Mike Kadas that a number of proposed changes to the tax plan would affect Montana, largely due to federal taxable income. Dodds said the bill cuts rates and narrows the tax base.

“If either of these bills become law, the state will have to reduce spending, increase other taxes, or amend its laws to prevent the revenue loss,” Dodds wrote in his analysis.

In response, Tester, who voted against the GOP plan along with other Senate Democrats, sent a letter back to Bullock, saying he shared the governor’s concern.

On top of lost revenue to the state, Tester bemoaned the bill’s addition of $1.5 trillion to the national debt while disproportionately benefiting multi-national corporations and the nation’s wealthiest earners.

“This bill … was crafted in the dark of night with no bipartisan input from the American public or from members of Congress on the other side of the aisle,” Tester wrote. “I remain extremely concerned about the unintended consequences this legislation will have on families, businesses, and the state of Montana.”

Tester said the bill will benefit the wealthy while leaving working families with less, a potential consequence that could be amplified if Montana is forced to make continued cuts to essential services and programs, state Democrats said Dec. 21.

“Senator Daines and Representative Gianforte voted for a bill they couldn’t possibly understand the effects of at home in our communities,” Rep. Kim Abbott, D-Helena, said. “We know this will have an effect on our bottom line.”

In Montana, cuts to services include $1.6 million to housing services for at-risk teen mothers, and $17 million for targeted case management for those with mental health issues. Nearly $11 million in cuts were dealt to senior long-term care, and 19 rural public assistance offices have been closed. Montana Democrats predict other cuts are likely to come as Republican-crafted tax and budgeting scenarios unfold.

The Montana Department of Revenue is working on a second analysis of how the final tax plan will impact the state budget, which House Minority Leader Jenny Eck, D-Helena, said will likely be damaging.

“We’re seeing a 500-page bill that’s been rammed through very quickly,” Eck said. “We know the cost of this will largely be carried by working families in the state.”

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