Republican-backed measure cuts the state’s top-bracket tax rate to 5.4%, extends a lower rate to more middle-income taxpayers.
By Eric Dietrich MONTANA FREE PRESS
Standing with a gaggle of Republican lawmakers Monday on the steps of the state Capitol, Gov. Greg Gianforte put pen to paper to sign a sweeping income tax cut, saying that scaling back state taxes on Montanans across the income spectrum will boost the state’s economy.
House Bill 337 reduces the state’s top-bracket tax rate down from 5.9% to 5.4% over the next two years. It also raises the maximum threshold for the state’s lower tax bracket, where income is taxed at a lower 4.7% rate, and expands a tax credit available to lower-income working families.
The governor’s budget office estimates the tax cut will reduce state revenues by $278 million a year by 2028.
“I’ve heard loud and clear from Montanans in every corner of our state — income tax relief is a clear priority,” Gianforte said.
The Republican governor also argued that Montana’s top-bracket income tax rate, which is higher than neighboring states, places a “wet blanket” on the state economy, hampering growth and job creation.
“Across the nation, Republican states are cutting their income tax rates. To stay competitive, we must do the same,” Gianforte said.
Montana is one of five states in the nation without a statewide sales tax.
For an individual filer earning $50,000 a year and claiming a $15,000 standard deduction — therefore with $35,000 in taxable income — the bill will result in $167 in annual savings once fully implemented, according to MTFP calculations. For an individual filer earning $200,000 a year and taking that same standard deduction, the annual savings would be $1,004.
An initial income tax cut bill brought on behalf of the governor would have cut the top-bracket rate by a full percentage point while leaving the lower-rate threshold unchanged. The successful bill, sponsored by Speaker of the House Brandon Ler, R-Savage, was developed as an alternative, passing with universal Republican support and near-universal opposition from Democrats.
“This is not a one-time cut — it is a long-term investment in Montana’s economy and Montana families,” Ler said at Monday’s bill-signing event. “We are sending a clear message to our citizens, our job creators, and our future generations: Montana is open for business, Montana believes in hard work, and Montana takes care of our own.”
Gianforte has repeatedly pushed to scale down the state’s top-bracket income tax rate, which stood at 6.9% when he took office in 2021.
Because income taxes are the state’s key revenue source, Democrats and other skeptics have worried those cuts will eventually jeopardize public services. They also criticize income tax rate cuts for providing disproportionate benefits to high-income taxpayers.
“Government exists to fund schools, fix roads, and provide public safety. Democrats do not support robbing people of essential services to pay for tax cuts for people who absolutely do not need them,” Rep. Mary Caferro, D-Helena, said in an emailed statement Monday. “The public is not crying out for more tax cuts for people at the top.”
In polling conducted in late January and early February by Montana Free Press and Rutgers University’s Eagleton Center for Public Interest Polling, 52% of respondents said they were dissatisfied with state income taxes, versus 74% who said they were dissatisfied with local property taxes.
Higher-income taxpayers pay a greater share of state income taxes under current law. According to figures from the Montana Department of Revenue, the highest-earning 20% of individual taxpayers reported 64% of the state’s taxable income and paid 70% of state income taxes collected in 2023.
Some Republicans who supported the income tax cut measure this year have said that they’re worried about the state budget for the coming budget cycle balancing in light of what they’ve called “reckless spending” authorized by spending bills supported by other Republicans and Democrats.
For example, a group of Senate Republicans including Senate President Matt Regier published an op-ed column in the Flathead Beacon this week urging Gianforte to use his veto power to “to trim the fat off the budget and bring some fiscal sanity back to our state’s finances.”
