We rarely complain about having too many tax cuts to choose from.
Given the opportunity, lawmakers can reduce property taxes, issue rebates, expand deductions, create credits, lower business taxes, or simply send excess revenue back to taxpayers. Most of those ideas have merit. When government collects more than it needs, taxpayers should benefit.
But not all tax cuts are created equal.
If states want tax relief that does more than provide temporary relief—if we want a tax cut that changes the state’s long-term economic trajectory—then reducing the individual income tax should be near the top of the list. And Montana is front and center in the current conversation.
The reason comes down to incentives.
A property tax rebate can put money back in a homeowner’s pocket. A one-time check can certainly help a family pay the bills. A targeted credit may benefit the people who qualify for it. Those are real benefits, and property taxes in particular remain a serious concern for many Montana families.
But none of those changes the reward for earning the next dollar.
The income tax does.
Every time a worker considers taking additional hours, accepting a promotion, or starting a side business, the income tax affects how much of the additional earnings that person gets to keep. Every time an entrepreneur weighs starting a company, a business owner considers expanding, or an investor decides where to put capital, taxes on income affect the potential return.
That’s why economists pay so much attention to marginal income tax rates. They don’t simply determine how much government collects. They influence the economic decisions people make every day.
Montana’s own tax reform history illustrates the point. For decades, the state steadily reduced income tax rates and simplified what was once a far more complicated system. The top marginal rate reached 11 percent in the 1980s. Beginning in 2003, lawmakers began reducing rates and brackets, and more recent reforms have continued that progress.
Now Montana has an opportunity to finish the job by moving to one flat rate of 4.7 percent.
Thousands of Montana businesses do not pay their taxes through the traditional corporate income tax. Sole proprietorships, partnerships, LLCs and S corporations often pass their income through to owners, where it is taxed under the individual income tax system.
That means when Montana reduces the individual income tax rate, it isn’t merely cutting taxes for wage earners. It is changing the tax environment for entrepreneurs and small businesses across the state.
That matters enormously in a region where Montana is competing against some of the most aggressive tax states in America.
Wyoming and South Dakota levy no individual income tax at all. North Dakota’s top rate is substantially lower than Montana’s. Idaho has a flat tax. Workers and businesses may love Montana’s mountains, communities, and quality of life, but state borders do not prevent them from comparing costs.
Capital is mobile. Businesses are mobile. Increasingly, workers are mobile too.
Economic modeling shows that moving to a 4.7 percent single-rate income tax is projected to increase Montana’s annual gross state product by about $525 million, increase annual wages by approximately $286 million, and support roughly 2,445 additional full-time equivalent jobs. And Montanans would also see an increase in yearly income of $642.
This does not mean other taxes should be ignored. Property tax reform is especially important. Homeowners should not be taxed out of homes they worked decades to own, and local governments should be held accountable for spending decisions that drive property tax bills higher.
But property tax relief and income tax reform solve different problems. Property tax relief addresses affordability and the cost of owning property. Income tax reform addresses growth, competitiveness, and the incentive to produce more.
Montana needs both conversations.
Tax policy inevitably involves tradeoffs. A tax cut means the government collects less than it otherwise would, at least initially, and policymakers should take that fiscal impact seriously. The economic analysis estimates a static revenue impact of roughly $210 million from a 4.7 percent flat tax compared with the 2026 baseline, falling to approximately $192 million after accounting for projected additional economic activity.
That is a legitimate cost to debate. But the other side of the ledger matters too.
What happens to wages? What happens to employment? What happens to investment? What happens when businesses decide whether Montana is where they want to expand?
Tax policy should not be judged exclusively by how much revenue government retains. It should also be judged by what happens to the economy that generates that revenue in the first place.
Montana has many ways to cut taxes. But if the goal is to make Montana more competitive, encourage investment, reward work, and create a stronger foundation for long-term growth, reducing the individual income tax deserves special attention.
Because the best tax cut isn’t necessarily the one that produces the biggest check today. It’s the one that creates more opportunities tomorrow.
Learn more at Flat. Fair. Montana.
Chris Cargill is the President of Mountain States Policy Center, an independent free market think tank based in Idaho, Montana, Wyoming and Washington.