MT Revenue Dept: GOP tax-cut bill could cut deeper into state budget

State Revenue Director Mike Kadas

HELENA – State revenue officials are now saying the Republican tax-cut bill before Congress could reduce state tax revenue by as much as $123 million a year – although the final version has yet to be determined.

GOP House and Senate leaders are in the midst of negotiating a new version of the massive tax-cut bill, deciding which elements of separate versions to discard, maintain or change before a final vote.

The latest estimate of the impacts to Montana’s tax revenue, more than $100 million higher than earlier Revenue Department estimates, says that increase is driven primarily by changes in the tax-cut bill passed by the Senate, on how business income is taxed.

“The bill passed by the Senate cuts rates and narrows the tax base,” Revenue Department senior economist Dan Dodds said this week. “The Senate bill would reduce state income-tax revenue by about $80 million per year, because it reduces the state tax base.”

The agency also said other changes in corporate income-tax rules would cause Montana corporate income-tax revenue to decline another $13 million a year.

“I have concerns that these changes (to the federal tax system) will have a net impact that negatively impacts the state (treasury),” state Revenue Director Mike Kadas said in a memo earlier this week.

Any reductions in tax revenue for the state would come on top of substantial cuts already made earlier this year to the state budget, in response to lower-than-expected revenue.

The head of a free-market think tank in Montana that’s been following the tax debate said Friday the Revenue Department analysis is “an important consideration” – but that it may be overstating the tax-cut bill’s impact to the state treasury.

Brent Mead of the Montana Policy Institute said some elements used in the analysis most certainly will be changed, as House and Senate leaders negotiate a final version.

“The department is trying to paint a picture that is somehow destined to occur, when … there are many options on the table for state policymakers that would prevent the scenarios laid out by the department,” he told MTN News. “I believe federal tax reform will be a positive for the state.”

Mead said the federal tax-cut bill would “leave more money in Montana families’ wallets, and it is a good thing that Montana small businesses will have more money to invest.”

Here’s a closer look at the Revenue Department’s latest estimates on how the tax-cut bill would affect state revenue:

The department said this change would cost the state $80 million a year.

Mead noted that the House version doesn’t include this version of the change for certain business income.

However, Mead says Congress has often waived these rules – and that he expects it to do it here.

“I think the assumption that these cuts will come to pass ignores both what is being said by congressional leaders today and how Congress has acted in the past,” he said.