Senator Steve Daines
Senator Jon Tester

HELENA – The Republican tax-cut bill before the U.S. Senate would lower federal income taxes for the vast majority of Montanans, but almost half its aggregate cut — $386 million next year – flows to the top three percent of income-earners, a state Revenue Department analysis shows.

The analysis, provided to MTN News, says about two-thirds of the 495,000 Montana households filing federal income-tax returns would see a tax cut of more than $50 a year, or at least 2 percent of their tax burden.

About one-third would see minimal changes – less than $50 a year – and only 1 percent would see a tax increase of more than $50 a year, the analysis said.

State revenue officials based the analysis on an early, announced version of the U.S. Senate bill, which has already undergone some changes and likely is facing action this week.

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The Senate bill cuts individual income-tax rates for most brackets, increases the standard deduction that taxpayers can take, and eliminates deductions for state and local taxes, as well as some other credits.

Montana revenue officials said their calculations didn’t take into account every aspect of the bill – for example, the impact of removing some tax credits, because it can’t be known who takes certain credits, or detailed rule changes on certain benefits.

The analysis also didn’t look at the effects of cutting corporate tax rates, which is a big part of the bill.

Yet revenue officials said the analysis should give a generally accurate picture of how the Senate bill affects individual taxpaying households in Montana.

Highlights of the analysis include:

  • In 2018, Montanans would pay about $792 million less in federal income taxes, under the Senate bill, an average of $1,600 per household – but the average reduction differs substantially among certain income levels.
  • Almost half of the total cut — $387 million – would go to the top three percent of income-earners in Montana, or the approximately 15,000 households that earn more than $196,000 a year. This group’s average tax cut would be nearly $26,000.

This group’s share of the federal tax cut under the bill is a bit more than its share of overall reported income in Montana. According to the state Revenue Department’s latest biennial report, the top-earning five percent of households in Montana reported 30 percent of the state’s income in 2015.

  • For the middle tier of income-earners – the 200,000 households earning between $20,000 and $64,000 a year in Montana – the average tax cut would be $710. The analysis estimated that 80 percent of this group would see tax cuts of more than $50 per household.
  • Among the bottom third of income-earners – those earning less than $20,000 a year – about 70 percent would see little or no change in their federal taxes. However, the overall group would still see an average reduction of $290 per household next year.
  • Montanans also would pay higher state income taxes, because of the federal bill – but only slightly, and only for a few households. The analysis estimated the overall increase for state incomes taxes next year would be about $27 million.

The Revenue Department also analyzed the Republican tax-cut bill passed by the House earlier this month, and found that it would result in a deeper overall tax cut, of $951 million – and that 43 percent of that overall cut would go to the top three percent of income-earners, or $410 million.

So far, both of Montana’s U.S. senators – Republican Steve Daines and Democrat Jon Tester – have expressed reservations about the bill.

Daines has said he wants the bill to include more benefits for smaller and mid-size businesses, and Tester said this week it increases the federal deficit while benefiting “wealthy out-of-staters.”