What is in Build Back Better and How Does it Help Montana?

President Biden and Congress recently unveiled the latest version of the federal recovery package, coined the Build Back Better plan. This package represents a significant investment in Montana communities, geared toward expanding economic opportunity and lowering costs for families and workers. Historic investments in child care, preschool, school nutrition, and the child tax credit will help lift millions of children from poverty. The Montana Budget & Policy Center will continue to update this page with information on key components of this package.

Child Nutrition and Child Tax Credit

Housing Affordability

Child Care

Congress has also set out a plan to pay for these new investments. The revenue framework for the federal reform plan will raise nearly $2 trillion over the next decade from the richest Americans and large, profitable corporations.

Many of our large, profitable corporations are paying no federal income tax. The package will fix that by ensuring that corporations with profits in excess of $1 billion pay a minimum tax of 15 percent on the profits they report to their shareholders. The plan also imposes a 1 percent surcharge when a corporation buys back its own stock – a scheme often used to shift profits to shareholders without paying dividends. The framework also addresses offshore corporate profits with a 15 percent minimum tax.

Our wealthiest individuals are also paying much less than they should in federal taxes. A much-needed high wealth tax will help ensure those with the most begin to pay their share with a surtax on incomes above $10 million. Lastly, the plan targets staggering tax avoidance at the top by increasing IRS funding to improve tax collections of taxes already due and avoided by the wealthiest.

We have a once-in-a-lifetime opportunity to address Montanans’ challenges and create a better country for everyone. We can make housing affordable, make it easier to raise a family, make sure everyone has good food to eat, and make sure seniors can stay in their homes. And we can afford it with policies that impact only the wealthiest. It is possible if Congress acts now.

Make your voice heard by contacting Senator Tester here.

State Tax Reform Worsens Racial Equity

Through a long and varied legislative history, Montana’s elected leaders have created a tax system where households living on lower and moderate incomes pay a larger percentage of their income in taxes than the wealthiest. Our laws, including those related to taxation, stem from a history of racial inequities and were passed by overwhelmingly white legislatures. The cumulative impact of these policy choices over time (for example, tax exemptions that favor business over people and lower tax rates for income from investments rather than wages) accounts for some of the racial injustice that exists in Montana today.

Recognizing that a person’s race or ethnicity should not influence their ability to participate in our economy, we must begin to undo the decades of harm that racist policies and practices have caused. A good place to start would be making our tax code more equitable and racially just. Unfortunately, the 2021 Legislature did the opposite when passing SB 159 and other bills that increased the regressivity of Montana’s tax system.

There is an important relationship between systemic racism and wealth that is relevant to the impact of taxes on income across race. Income is used for everyday expenses and provides for immediate needs. Wealth, or the sum of resources accumulated over time, offers financial security and allows for investments in the future like higher education, purchasing a home, or saving for retirement. In the nation, the wealthiest 10 percent of white households hold two-thirds of U.S. wealth, and their wealth is increasing all the time. From 1983 to 2013, 99.4 percent of all gains in wealth went to the wealthiest 20 percent.[1],[2] In 2019, a white family at the median income level had over $188,000 in net worth while a Black family at median income level had just over $24,000 in net worth, or 13 cents to the dollar of the white family’s wealth.[3] A Latinx family at median income had just over $36,000 in net worth. Other families, a diverse group which includes American Indians, also had lower wealth levels than white families.

These numbers represent more than a point in time – they represent the historical injustices perpetrated by racist, biased, and discriminatory policies and practices against Black, Indigenous, and people of color (BIPOC). Wealth, or a lack thereof, can persist across generations, as is shown as the median income for a Black or Latinx family is 58 percent of the median income of a white family ($69,230 for white families vs. $40,720 for Black families), yet net worth for a Black family is only 12 percent of a white family’s net worth.[4] The racial wealth gap continues to rise because whiteness has continually played a serious role in wealth building in a society and tax system that ignores the day-to-day realities of most BIPOC. Examples of this include how Black families who purchase homes in neighborhoods with lots of Black neighbors lose out on wealth gains compared to home purchases in majority white neighborhoods or how Black students carry more student loans than white students, creating financial barriers.[5],[6]

Brief History of Racial Discrimination and Economic Oppression

In the United States, white people have benefited from substantial generational income and wealth gains through racist historical institutions and atrocities, such as the taking of land and resources from

Indigenous people; the enslavement of Black people; laws limiting access to housing, education, voting, and good jobs; and subjugation of people of color and immigrants in countless other ways.

One of the lasting effects of these practices is our state tax code, which like many of our state policies, is inextricably tied to historical and ongoing discrimination and the resulting effects. For example, today in Montana, households who make money from investments pay a lower effective tax rate than those who earn income from wages. [7] As systemic racism and present-day discrimination have resulted in a system where BIPOC have been and continue to be denied access to build wealth and equal income, this policy favors white people. In 2018, more than half of this tax break went to the wealthiest 1 percent of Montanans (4,713 households making more than $420,000 annually).

Tax cuts that favor those with higher incomes, who are disproportionately white, continue to exacerbate the racial wealth gap, as white households can keep more of their income on average. In contrast, the tax code requires Black, Indigenous, and households of color to contribute a larger share of their incomes to taxes, on average. In fact, the overall effective state and local tax rate for white Montanans today is 6.7 percent, while Montanans who are American Indian/Alaska Native (AI/AN) pay 6.9 percent of their income in state and local taxes.[8]

The Tax Code Favors Whiteness and Wealth

An analysis of Montana’s state and local taxes by income levels shows that Montanans living on lower incomes pay higher tax rates than those with higher incomes. In other words, Montana’s tax system is regressive. In Montana, those with incomes below $18,000 pay 7.8 percent of their income in state and local taxes, while those with incomes greater than $448,500 pay 6.5 percent.[9] This disproportionately benefits white people.

Looking at effective tax rates of the top 20 percent of Montanans compared to everyone else follows this trend, showing that, overall, the top 20 percent pay a lower share of their income in taxes than the lowest 20 percent, with incomes up to $18,000 annually.[10] Even within income groups, the tax code favors white Montanans. Indigenous households in the bottom 80 percent of income (incomes up to $92,200) pay a 7 percent effective tax rate, compared to 6.8 percent for white households. Indigenous households in the top 20 percent of incomes (incomes above $92,200) pay a 6.7 percent tax rate, compared to 6.6 percent for white households. Again, this is because of a history that has denied wealth and resources to Indigenous people.

2021 Income Tax Cut Goes to White, Wealthy Montanans

On the heels of the COVID-19 pandemic, which exacerbated the existing racial wealth gap, Montana’s 2021 Legislature passed SB 159, an income tax cut that goes primarily to white, wealthy Montanans. This policy choice creates an uneven recovery for people on low and moderate incomes, who are disproportionately BIPOC. SB 159 dropped Montana’s top income tax rate from 6.9 percent to 6.75 percent. Nearly 80 percent of the benefit of this tax cut will go to the wealthiest 20 percent of Montanans, who are disproportionately white because of a history of policymaking that favors whiteness.[11]

Even starker, more than 96 percent of the tax cut will go to white Montanans, while Indigenous Montanans saw 0.9 percent of the tax cut, despite holding 1.9 percent of total returns. Data limitations grouped all other individuals into an “other single race” category, making it difficult to know the impact on Black Montanans and other Montanans of color. This category received 3.6 percent of the total tax cut, despite holding 5.6 percent of total returns.

This tax cut worsens the current distribution of who pays taxes in Montana by disproportionately reducing taxes paid as a percentage of income for the wealthiest, who are overwhelmingly white.

This tax cut will also decrease overall state revenue, which has significant consequences for racial equity as Montana needs revenue to invest in services and institutions that can advance racial and economic equity. For example, beginning in 1995, Montana responded to the tribal college funding shortfall resulting from non-American Indian students attending tribal colleges and began reimbursing tribal colleges for the education of resident full-time non-American Indian students.[12] While Montana needs to ensure statewide parity for state investment per student at tribal colleges (state funding per non-American Indian students at tribal colleges falls well below state investment in students in community colleges), this funding supports the significant return on investment Montana receives from tribal college education. Without adequate revenue, Montana lawmakers could not make this choice.

Today’s Tax Code Is a Barrier to Racial Equity 

Taxes are based on income, purchases, wealth, and property ownership, which are linked with race due to decades of public and private racial discrimination. This has resulted in narrower economic opportunities for BIPOC compared to white people, stark differences in political representation and power, and a staggering racial wealth gap.

While today’s tax code is a barrier to racial equity, the following reforms would help even out our tax code and lessen barriers of regressive taxation that Black, Indigenous, and Montanans of color face.

  • Restoring a top marginal tax bracket limited to households with the highest incomes;
  • Repeal the capital gains tax break; and
  • Repeal business tax breaks.

The Data is in: Families are Spending their Child Tax Credits on Basic Needs

We’ve written before about how the expanded Child Tax Credit (CTC) is a historical step in lifting children out of poverty. But new data released from the U.S. Census Bureau can help us better understand how families use the expanded tax credit to meet their basic needs.

First, a quick recap about what the expanded CTC is: 

The CTC has long been part of our tax code. This past summer, Congress increased and expanded it to help families recover from the pandemic and address the cost of raising children. Congress increased the benefit amount, included 17-year-olds, and allowed families living on the lowest incomes to receive the full benefit for the first time. Families receive $250 a month per child aged 6-17 and $300 a month for children under 6.

Over 209,000 children qualify for the credit in Montana. The expansion is projected to reduce childhood poverty in the state by 45 percent a year if made permanent. For more information on how the expanded CTC works, be sure to read our blog post here.          

New Data Shows Families in Montana are using CTC to meet basic needs.

Since the summer of 2020. the U.S. Census Bureau has been conducting the Pulse Survey to measure the effects of the pandemic on households. Recently, the survey has asked households with children how they have spent their credits.

Data from July through September shows us that families in Montana used their first two CTC payments to meet basic needs, including food, clothing, rent, and utilities.

Here are some important takeaways from the data:

  • Nearly half (44%) of all families are using their credit on food for their household.
  • 3 out of 5 families spent their credits on basic needs and/or educational expenses regardless of their income.

For families living on less than $35,000 a year, the credit is even more essential. Here’s how families living on low incomes used their credit:

  • Food  65% of families spent their credit on food.
  • Utilities – 40% of families used their credit on utility bills.
  • Educational expenses – 34% of families used their credit on educational needs, including after-school care.Clothing – 32% of families used their credit on clothing.
  • Rent or mortgage – 29% of families paid rent or their mortgage with their tax credit. 
  • Basic needs and educational expenses – 4 out of 5 low-income families used their credit on basic needs and/or educational expenses. 

The tax credit also helps families afford to work.

In Montana, ten percent of families, and 17 percent of families with children under the age of 5, used the credit to pay child care expenses. The coronavirus pandemic has forced many parents, especially mothers, out of the workforce, due to health concerns, school closures, and a lack of affordable child care. For families who need child care to work, the credit helps make work accessible.

Congress should make the expanded CTC permanent.

This new data from the Census Bureau demonstrates how much families need this additional support. When families can afford rent, food, and other necessities, children ultimately do better. Congress should make the expanded CTC permanent and continue this historic victory against childhood poverty.

MBPC Opinion Editorial: It is time to make billionaires pay their fair share

Billings Gazette and Helena Independent Record

A fair economic recovery is possible and affordable. It’s time for billionaires and corporations to chip in.

In Washington, Congress is debating how to help families get back on their feet after a challenging 18 months. However, with so many Montanans still struggling, we cannot afford to return to the way things were. We need to move forward to something better.

While businesses are grappling with the fallout of the global health pandemic and economic downturn, many families know that this crisis has merely laid bare the barriers they have long faced. Rising housing costs and the pressure of balancing caring for family — both young and old — have made it nearly impossible to earn enough to make ends meet. Investments in child care, affordable housing, and home- and community-based services will help people return to work and build a future for their families. They will also foster the workforce that businesses need to get back up and running.

Congress has the opportunity right now to fund these and many other critical investments by ensuring the wealthiest Americans pay their fair share in taxes. Currently, our federal tax system is riddled with loopholes that benefit the wealthiest households and corporations at the expense of investments in the rest of us. Lopsided tax cuts enacted in 2017 made the tax code even more unfair, showering the wealthiest with additional, excessive perks. In 2020, the richest 20 percent of Americans received nearly three-fourths of the tax cuts, costing our country $205 billion. Congress’s plan would make sure the richest 1 percent are paying their fair share.

Making matters worse, the top 1 percent of earners avoid $163 billion in taxes every year. A recent investigation exposed how the country’s wealthiest individuals pay far less than they’re supposed to in federal income taxes. Simply improving tax collections of taxes already due and avoided, mainly by the wealthiest, would add $1.6 trillion in revenue over the next decade.

It is long past time to make a change. Congress should do what’s necessary to ensure billionaires can’t use loopholes and other tactics to avoid paying income taxes on their fortunes.

Congress’s plan would make sure people like Jeff Bezos are paying their fair share. The proposed individual income tax changes would require the richest 1 percent to pay for 97 percent of the tax increase, which will start to address inequities in America’s tax system. And when paired with increases in the child tax credit and the earned income tax credit, these improvements will help families with the lowest incomes – who are often left out of tax reform.

What’s more, a recent study by the Institute on Taxation and Economic Policy found that at least 55 of the nation’s largest companies paid no federal corporate income taxes in 2020. The current plan being discussed by Congress calls for increasing the corporate income tax rate for companies with over $5 million in annual profits and lowering the rate for small corporations with income below $400,000. The proposal also helps level the playing field so small businesses can compete by limiting the amount of taxes avoided by multinational corporations that shift income overseas.

Corporations and the wealthiest have been getting a special deal for too long. Congress should reduce our tax code’s inequities. Most importantly, it should make the investments needed to ensure everyone is included in our economic recovery. Congress has a historic opportunity to close offshore tax haven loopholes, make billionaires pay their fair share, and go after tax cheats. And with new investments in child care, education, and housing, we can make sure all Montanans can thrive.+1 

Rose Bender is Deputy Director of Research and a Senior Fiscal Policy Analyst with the Montana Budget & Policy Center – a nonprofit organization focused on research and advancement of public policies that help families living on low incomes.

Gianforte-backed income tax cuts move through Legislature

Daily Montanan

A Senate panel Thursday heard a series of income tax cut proposals brought to the Legislature by Gov. Greg Gianforte and backed by the private sector, part of a larger package of conservative tax reforms from the governor. 

Gianforte’s stance is that slicing the income tax, creating a capital gains tax exemption on profits from the sale of shares in Montana companies, cutting business equipment taxes and more, are necessary to attract business growth and high-paying jobs to the state, bringing Montana in line with other states in the mountain West. 

“Governor Gianforte is sending a message to entrepreneurs and business leaders across the country,” the governor’s budget director, Kurt Alme, told the Senate Tax Committee on Thursday during testimony on SB159, which would cut the tax rate on taxable income above $17,400 by around 2 percent. 

But Democrats, unions, progressive nonprofits and policy analysts see the cuts, marketed by the governor’s staff as broad relief for over half of the state’s taxpayers, as an upward transfer of wealth based on economic assumptions that one opponent compared to flat earth theory. 

“This proposal will largely benefit the wealthiest taxpayers in Montana. Lower income households, those who have struggled most this past year … would see virtually no benefit,” said SJ Howell, the executive director of Montana Women Vote. “Most concerningly, this proposal comes with a price tag that is just too high.”

SB159, which proposes to cut the tax rate at the top income bracket from 6.9 percent to 6.75 percent, would reduce state revenues by around $30 million a year beginning in fiscal year 2023, lasting until the bill’s planned expiration at the end of 2025. That means a more than $90 million draw from state coffers. 

SB182, another Gianforte tax proposal the committee heard Thursday, and one of several making their way through the Legislature this week, would create a series of cuts to the top income tax rate that would kick in dependent on meeting certain targets for revenue growth. 

“If Montana’s economic growth curve shifts up, and if we’re able to find efficiencies in government, and if our reserves stay strong, in the fall of 2022, our income tax will tick down if there’s enough money in the fund,” Alme said. 

A fiscal note on the bill is not yet available, but the net effect would be ongoing tax cuts of up to 0.25 percent so long as the state hits those triggers. Opponents worried the bill could leave the state stuck with declining revenues without a clear picture of its economic health in the coming years. 

Some who testified Thursday made comparisons between the income tax cuts and the tax reform package ominously dubbed the “Kansas Experiment,” a 2012 bill signed by Kansas Gov. Sam Brownback that cut and consolidated income tax brackets and exempted “pass-through” entities like LLCs and sole proprietorships. 

The proposal was branded as a “shot of adrenaline” for the state’s economy. But the ramifications to state services were so severe — to the tune of hundreds of millions of dollars in cuts — that Republican lawmakers in Kansas reversed the policy in 2017, even overriding a veto from Brownback.

Indeed, one of that plan’s architects, the supply-side economist Arthur Laffer, is the business partner of one of the Gianforte plan’s proponents, Donna Arduin, a consultant and roaming state officer who specializes in shrinking budgets. 

Gianforte, a Republican, founded RightNow Technologies, a Bozeman technology company that sold to Oracle for $1.8 billion in 2012 before his entrance to politics. 

Sen. Greg Hertz, R-Polson, who is carrying two of the tax cut bills for Gianforte, pushed back on the comparison to the Kansas plan. 

“This is a 2 percent reduction,” he said, referring to SB159. “Not 30 percent that was in Kansas. The governor’s proposed budget is not making any significant cuts.”

But legislative fiscal analysts warn that the state could be running under a moderate structural imbalance, and opponents fear cuts to state services would be an inevitable consequence of cutting taxes.

These fears were especially acute in testimony on SB182, which would create a special state revenue account called the tax reduction fund. That fund would receive transfers from the budget stabilization — or “rainy day” — fund, the fire suppression fund and the capital development fund, meant to finance infrastructure projects, if state revenues and projections for economic growth hit certain targets. 

For example, if real general fund revenue exceeds projections, 25 percent of the surplus goes back in the general fund, while the remainder goes into the rainy day fund. If that fund reaches its statutory cap, 50 percent of the surplus goes to the capital development fund, while the remainder would either go back to the general fund or to the tax reduction fund if the state hit economic growth targets. 

If these transfers fill the tax reduction fund to a certain level, automatic tax cuts ranging from 0.025 percent to 0.25 percent kick in. 

The intention is to use the tax revenue fund to finance the tax cuts. However, Heather O’Loughlin, co-director of the liberal-leaning Montana Budget and Policy Center, said the structure of the bill is such that one-time transfers from the proposed tax reduction fund might “meet the cost of that income tax reduction over a two-year period,” but likely not beyond that. 

Beth Brenneman, with Disability Rights Montana, said trigger bills like this are “tricky” and often have unpredictable results. She referenced 2017’s SB261, spending legislation that created a series of revenue targets that would trigger fund transfers and budget cuts if not met. 

The state hit the triggers, causing massive reductions to DPHHS and other areas — accompanied by layoffs and termination of private contractors — that were only exacerbated when lawmakers made further cuts in an ensuing special session.

“We don’t have services and capacity like we had in 2017, and we won’t have it for years,” Brenneman told the committee.

Gianforte’s proposed budget largely retains current spending levels for key programs, though it proposes to spend $100 million less than the budget proposal from prior Gov. Steve Bullock, a Democrat. However, this doesn’t mean the Legislature will oblige that position — Republican lawmakers in the budget subcommittee overseeing the Department of Public Health and Human Services began negotiations on that agency’s budgets with a starting point that would constitute a $1 billion cut over the next biennium.

“Where do we look to fund the essential services in Montana?” asked Eric Burke, the executive director of the Montana Federation of Public Employees. “We look to increases in local property taxes, sales tax, tuition, excise taxes or fees…all of these revenues disproportionately shift tax burdens to low and middle income Montanans in comparison to the income tax.”

Hertz and Alme warn that Montana is losing out to other Western states, which for the most part have lower income tax rates on top earners, though they also generally have different tax structures, or rely on natural resource revenues. 

Several representatives from business groups and industries in the state spoke Thursday in favor of the proposal, saying it would keep more money in the hands of their employees and support business relocation to the state. 

“We think (the bill) sends the right message to our workforce, and to our entrepreneurs, so please support it,” testified Brad Griffin of the Montana Retail Federation.

However, the proposal would have minimal benefit on low and middle income Montanans, opponents argue. Those making more than $500,000 could get tax relief exceeding $700 a year; for those making less than $60,000, the cut looks more like $50, as reported by KTVH when the plans were unveiled in January. 

Another opponent, Missoula-based union official Mark Anderlik, cited a December 2020 working paper from academics at the London School of Economics, which analyzed five decades of data from several countries to determine that top-level income tax rates do more to exacerbate income inequality than they do to stimulate job or wage growth. 

Alme, the governor’s budget director, said Gianforte understands that “some with low incomes face particular challenges.” 

In response, Alme touted Gianforte’s plan to cut property taxes for low-income homeowners, and he said people who earned less than $17,400 of taxable income are often just there temporarily. 

For those who are stuck in low-paying jobs, Alme and Hertz echoed similar theories: the tax cut would bring high-paying jobs to Montana.

“What’s the best thing we can do for those individuals in need?” Hertz asked, rhetorically. “Provide them a better opportunity and a better paying job. That’s the basics.”

Policy Basics: Property Taxes in Montana

The Montana property tax system supports local public services, including schools, roads, and other infrastructure. Residential property owners pay almost half of all property taxes. Every two years, the state undergoes a reappraisal process to update the property values for purposes of property taxes.

Property Taxes Educate Children and Protect Families

State and local property taxes collected in Montana make up approximately 40 percent of our total state and local tax revenue, for a total of $1.8 billion in FY19.[1] The vast majority of these funds are directed toward local governments and schools to invest in public services we all rely on. Eighty-three percent of property tax revenue is invested in local governments, including supporting local schools, services like fire protection, and infrastructure, such as roads and bridges (Figure 1).[2] The state of Montana receives about 17 percent of property taxes through statewide mills – to ensure equitable support of local schools, universities, and technical colleges.[3] 

Families Living on Low Incomes Pay Greatest Share of Income in Property Taxes  

Montana homeowners pay a large portion of total property taxes, representing about 49 percent of all property tax revenue.[4] While property taxes are greater for homes of higher value, the property tax system is still considered regressive, meaning that, on average, households with higher incomes pay a smaller share of their income in property taxes than households living on lower incomes. In Montana, property taxes paid by the wealthiest 1percent of taxpayers represents 1.6 percent of their overall income, compared to 5.3 percent of income for the Montanans living on the lowest incomes (Figure 2).[5]

Property taxes tend to be regressive because they do not take into account a homeowner’s income or ability to pay and because housing costs tend to be larger in proportion to the income of households living on lesser means than households with more wealth.[6] For example, a family making $50,000 a year may own a home costing $150,000, or three times their wages, while a family making $1 million per year may own a home costing $500,000, or half their pay. Therefore, the property taxes paid by the household living on low income will represent a greater proportion of their family income than the property taxes paid by a household with high income.

It is important to remember that property taxes are not limited to property owners. Renters pay a portion of the property taxes paid on rental properties because the taxes are “passed through” by the landlords when setting the rent amount.[7]Both State and Local Governments Play a Role in Assessing Property Taxes

Determining what the property taxes will be on a piece of property is complicated and requires a series of steps. The Montana Department of Revenue is responsible for appraising – or valuing – property in the state to determine the market value.[8] Each taxing jurisdiction – county, city, or school district – uses these values to calculate property taxes.

The Montana Legislature created 15 different classes of property, including residential and commercial property, agricultural land, business equipment, and centrally assessed property.[9] Centrally assessed property is property owned by a company operating as a single entity and connected across county or state borders. This includes things like railroads, telecommunication lines, power lines, natural gas or oil transmission lines, and airlines. Each property within a class is valued in the same manner. For residential property, the market value is the value for which the property would sell between a willing buyer and willing seller.[10] The department uses the sales price of similar properties in the area to determine a value for properties that have not been sold.[11]

The Montana Legislature then assigns a tax rate to each class of property and multiplies that tax rate by the property’s market value to determine the taxable value. The tax rate in 2018 was 1.35 percent for residential property and 1.89 percent for commercial property.[12] Local taxing jurisdictions – cities and counties – apply the mill levies to the property’s taxable value to determine taxes owed. County governments are responsible for collecting property taxes and distributing the appropriate portion of those taxes to the state, cities, school districts, and other taxing jurisdictions.[13] 

Reappraisal Process Critical to Accurately Valuing Property

The Montana Constitution and state law require the Montana Department of Revenue to reappraise all property periodically and value similar property across the state in the same manner.[14] The reappraisal process is an important component in ensuring local governments, schools, and the state are accurately reflecting property values for property tax purposes. Taxing jurisdictions in the state set their budgets and mills based on these updated values. Tax year 2015 began the first year of a two-year appraisal cycle for residential, commercial, industrial, and agricultural property.[15] Forest land remains on a six-year appraisal cycle. The Legislature maintained the tax rates for all classes in the most recent legislative sessions. The impact on individual homeowners depends on market values in their region or county and varies from home to home.

Homeowners Pay the Greatest Share of Total Property Taxes

Property taxes paid by residential homeowners comprise almost half of all property taxes (Figure 4).[16] In fact, Montana homeowners have seen an increase in the share of property taxes they pay compared to other classes of property (Figure 5).[17]

Residential property owners pay a greater share of property taxes, in part because the Legislature has cut the tax rates on other property classes. For example, over the past several decades, the effective tax rate on business equipment has fallen by more than 50 percent.[18] This often results in a shift of tax liability to other property taxpayers over time.[19] The Legislature caps the amount local governments can raise from property taxes.[20] When the Legislature cuts the tax rates for some property classes, the total taxable value in the entire local jurisdiction decreases. When the taxable value goes down, so does the amount of revenue for that jurisdiction. To maintain revenue levels, the local jurisdiction would have to raise its mill levies on all property owners.[21] The increased mill levies are then applied to the remaining property in the jurisdiction, most significantly to residential property. As a result, local revenue remains constant, but the obligation to support local government functions shifts to homeowners and other property owners.While Montana’s local governments and schools rely heavily on property tax for needed revenue, Montana’s effective tax rate for property tax is lower than the national average. Montana generates a large portion of its total taxes from property tax (40 percent), compared to the national average of 31 percent.[22] This difference, however, is due to the fact that Montana does not have a sales tax like most other states. Nationwide, Montana ranks 33rd for its effective residential property tax rate of 0.73 percent. The national median is 1.05 percent.[23]


Property Taxes in Indian Country
 

The taxation of property in Indian Country is often misconstrued as a “loss” of tax revenue. First and foremost, it should be clarified that the tax base was never “lost” as it never existed in the first place. All reservations consist of lands that tribal nations either reserved from their land cessions to the U.S. or lands set aside for their exclusive use via statutes and executive orders. Land owned collectively by the tribal nation, as well as land allotted to individual tribal citizens in accordance with the General Allotment Act of 1887, is called trust land and is held in trust for tribal nations by the federal government. Similar to all other federal property, such as national parks and forestlands, trust land cannot be taxed and is therefore not subject to state or local property taxes.[24]

As a result of the forced allotment of many reservations, there are now parcels of fee land that are privately owned and subject to state and local property taxation. This includes fee land owned by tribal citizens, even when their property is located on their reservation.[25]

To help offset the loss of property taxes that support local public schools, districts located on reservations and other federal lands can apply for federal Impact Aid, also known as Title VII funds.[26] Through Impact Aid, 78 public schools in Montana received nearly $67 million in federal aid in 2019. Sixty-seven of these school districts included reservation land.[27]

The State Provides Assistance for Property Taxpayers Living on Low Incomes 

The Montana Legislature has put in place four distinct programs to reduce property tax liability for some homeowners. The largest of these programs, the Elderly Homeowners/Renter Credit, provides taxpayers age 62 or older with household incomes less than $45,000 an income tax credit to help offset property taxes. The refundable credit is capped at $1,000 and phases out at incomes between $35,000 and $45,000.[28] In 2017, 13,567 Montana seniors with income tax liability received the Elderly Homeowner/Renter Credit.[29]

The state also provides two property tax programs that directly reduce property taxes for certain households. The first, the Property Tax Assistance Program (PTAP), reduces residential property taxes for households with lower incomes. The taxpayer must live in their home for at least seven months out of the year and have incomes below $21,607 for one eligible owner (or below $28,810 for a property with two eligible owners).[30] In 2018, more than 23,000 property taxpayers received assistance through PTAP, nearly a threefold increase since 2006.[31]

The state also provides the Disabled American Veterans (DAV) program, which provides property tax assistance for disabled veterans. The property must be the taxpayer’s primary residence, and a taxpayer qualifies if they are a veteran honorably discharged and paid at the 100 percent disabled rate for a service-connected disability.[32] A spouse of a veteran who was killed while on active duty or who died from a service-connected disability may also be eligible for the DAV program. In 2018, more than 2,500 veterans or family members received assistance through the Disabled American Veterans program.[33]

In 2017, the Legislature created a new property tax assistance program starting in 2018 for long-time property owners where the value of their land is disproportionately higher than the value of their home.[34] The program caps the land value of their primary residence parcel to 150 percent of the improvement value, subject to a minimum per acre value consistent with the statewide average value.[35] To qualify, the owner must live in the property for at least seven months of the year and have owned (or family owned) the property for at least 30 years.

State Budget Cuts Put Strain on Property Assessment Process

The 2017 legislative session resulted in deep cuts to nearly all state agencies, including the Montana Department of Revenue. As a result of lower revenue levels, the governor and Legislature cut approximately $6 million in general fund appropriations from the Department.[36] Within the Department, the Property Assessment Division (PAD) faced the most severe cuts, with the closure of half of all county property assessment offices and a loss in the number of staff positions.[37] Fewer office locations result in people living in rural communities with less access to those who determine property values and set property taxes, which are a significant portion of a households state and local taxes.

Conclusion

Montana’s property tax system provides important funding for education through our local schools, infrastructure like our roads and bridges, and other local services like fire protection. Elected officials, like our state legislators, have a very important role in deciding how our property tax system works. The Department of Revenue’s role to reappraise property in the state ensures a fair system of valuing property for purposes of taxation.

Unfortunately, Montanans living on lower incomes pay a larger share of property tax than Montanans with high salaries. There are further options for improving the fairness of our state property tax system, in addition to those already in existence, such as our property tax assistance programs and a fair, statewide reappraisal schedule. Further connecting income to property taxes would assure that Montanans with lower incomes are not priced out of their homes due to increases to property taxes. Also, continuing to broaden the property tax base rather than passing further exemptions can stop the increasing share of property taxes paid by residential homeowners.

New report details taxation in Indian Country

Great Falls Tribune

The Montana Budget and Policy Center this month released a report, which explores the intersection of taxation and tribal sovereignty, citizenship, and jurisdiction.

Preston Parish, State-Tribal Montana Budget and Policy Center analyst, said “understanding taxation authority is important as Montana looks to recover from COVID-19.”

“Like any government, tribal governments need revenue to fund essential services and programs that keep communities healthy, educate children and develop workforces,” he said in a statement to the Tribune.

The report outlines the importance of taxation authority.

“Honoring tribal taxation authority presents an opportunity to protect and enhance tribal government functions and services. What is good for Indian Country is good for Montana,” the report states.

The report argues that power to tax is essential in a tribe’s right to self-governance, as taxation is an important tool of control that helps provide government services.

“The same sovereignty that allowed tribal nations to enter into treaties with the United States is also what enables them to tax within the boundaries of their reservations,” the report reads.

Tribal governments offer programs and services to their communities, including reservation infrastructure, natural resources and land management, order and safety, education, health and human services, housing, economic development and public transit.

Though tribal governments have the right to taxation, the report states, “non-tribal governments have challenged tribal taxing power.”

Though tribal governments can tax citizens living on their reservations, most don’t.

“One reason includes economic challenges, which are part of the legacy of settler colonialism,” according to the report.

Source of revenue for tribal governments in Montana, according to Montana Budget and Policy Center report.

The state cannot tax tribes or citizens on their reservations, except if the state or county assesses property taxes on on-reservation fee land that tribes or their citizens own.

Tribal governments differ from other local governments in that tax revenue is not a significant source of revenue. Rather, according to the Montana Department of Commerce, federal funding, which part of a trust responsibility, provides the greatest source of revenue for tribal governments. Tribal governments also rely on businesses as a core source of revenue, according to the report.

Visit www.montanabudget.org to read the full report.

Capital Gains Tax Credit: Valuing Wealth Over Work in Montana

In 2003, the Montana Legislature passed a capital gains tax credit that benefits a very narrow portion of our population at the great expense of our collective ability to adequately invest in public programs, from education to health care. Currently, Montana is one of just nine states offering a significant tax break for capital gains income.[1] Since 2003, this tax break has proven to be unaffordable, unfair to working-class Montanans, and has not helped the economy. In fact, the tax credit costs the state tens of millions of dollars in state revenue each year and limits our collective ability to invest in schools, families, and communities across this state. These funds are especially critical now, at a time when so many families are struggling to pay rent and feed their children. It is time for the Montana Legislature to take a hard look at this costly tax break that predominantly benefits the wealthiest Montanans when those funds can be better spent on the economic recovery of our communities.

What Are Capital Gains?

Capital gains are profits from the sale of stocks, bonds, real estate, art, antiques, or other assets. These profits are usually not taxed until they are “realized,” that is, until the asset is sold. This means that a stock or vacation home can become more and more valuable, but the investor will not pay taxes on the appreciation of that asset until it is sold. The capital gains are calculated by taking the difference between the original purchase price and the price at the time of sale. The assets owned by most Montanans like houses and retirement income are generally exempt from taxation when sold.

How Does Montana Treat Capital Gains? 

In 2003, the legislature passed Senate Bill 407, which created the capital gains credit and also instituted other tax cutting provisions.[2] The credit lowered the effective tax rate on capital gains by giving a nonrefundable credit starting in 2005.

Montana is one of only nine states that provide a broad tax break on income from capital gains.[3] While the federal tax code provides a lower rate on capital gains income, nearly all states require equal treatment of income from capital gains as income from wages.

Capital Gains Tax Breaks Value Wealth Over Work

The creation of a tax break for capital gains income has created a tax system that favors wealth over work. Capital gains tax breaks mean individuals with incomes from wages pay higher tax rates than people whose income comes from growth in assets.

This chart illustrates the different taxes paid by two individuals with the same amount of income. In 2019, a firefighter in Montana earned an annual wage of $51,880.[4] Compare this to an investor who earned the same amount, but through the sale of stock. The firefighter paid $2,495 in state income taxes, and the investor paid $1,457. The investor paid $1,038, or 42 percent, less in taxes than the firefighter.[5]

Only a small number of Montanans take advantage of the capital gains credit. In 2018, 55 percent of the capital gains tax cut went to the wealthiest 4,713 taxpayers (those earning more than $420,000).[6] In 2017, over 78 percent of Montana taxpayers – more than 448,000 taxpayers – did not receive any benefit from the capital gains credit.[7] Montanans living on middle and low incomes do not benefit from the capital gain credit because they are much more likely to earn their income on the job rather than through selling large assets. Furthermore, common assets owned by most Montanans like houses and retirement funds are generally not treated as taxable capital gains when they are sold.[8] Recent analysis by the Montana Department of Revenue shows the vast majority of very wealthy taxpayers benefiting from the capital gains tax credit are taking the credit year after year (as opposed to a one-time profit).[9] The Department looked at those who had more than $1 million of capital gains income in 2010, and noted that in 2015, 82 percent of those same taxpayers were still benefiting from the capital gains tax credit.

Additionally, profits from capital gains have increased significantly since 2001. From 2001 to 2017, capital gains income by Montana taxpayers increased by almost 3 times, to nearly $2.2 billion.[10] The vast majority of those capital gains went to the wealthiest Montanans, with over half of the 2017 capital gains credit claimed by the wealthiest 1 percent of Montanans.[11] As capital gains income continues to increase for many of the wealthiest individuals, these same individuals are also reaping tax savings that others do not, all while the state loses critical revenue at a time when many families are struggling.

Montana Cannot Afford the Capital Gains Tax Credit

The capital gains credit is unaffordable – especially as our state tries to recover from a pandemic and resulting economic recession – and hurts our ability to fund services like education, health care, and infrastructure. When SB 407 passed, the legislature expected the bill to cost $26 million in 2005, the year its provisions went into effect.[12] In fact, the combined tax cuts passed in 2003 cost the state $100 million in 2005.[13] In a little more than a decade, Montana has lost approximately $976 million in revenue, from the tax cuts from 2003.[14]

A major portion of the continued revenue loss is attributed to the capital gains tax credit, primarily benefiting the wealthy. While earnings through capital gains dipped during the Great Recession, these earnings have grown significantly since 2009, representing a significant loss in revenue year after year.[15] In 2018, the state lost $55 million in revenue as a result of the capital gains tax loophole.[16] This level of revenue could have covered 4 years of public pre-K.[17]

Tax credits are an expense to the state just like any other appropriation.  By giving people who sell assets like stocks and art a special tax break, the result is that the state collects less. It is also difficult for the state to predict and plan, it is impossible to control, and it benefits very few. This is in comparison to supporting public services which are more stable and benefit everyone. For example, when Montana invests in higher education, the legislature sets the amount the state contributes to universities, community colleges, and technical training centers. This helps those seeking higher incomes, businesses who need skilled employees, and our state’s economy. In contrast, the full cost of the capital gains credit to the state depends solely on individuals’ decisions to buy or sell assets, and therefore can vary greatly and is effectively unlimited.

Montana Should Treat Capital Gains Like Other Types of Income

Economic theory and experience indicate that treating capital gains more favorably than earned income does not help the economy grow and may actually prevent growth in the short-term by forcing state budget cuts.[18] In contrast, rolling back this tax break would restore revenue to help support public investments, like education, health care, and infrastructure. These funds are particularly important now as Montana navigates the pandemic and plans for economic recovery.

Montana should create a more equitable tax system by taxing wages and capital gains the same. This will create a greater incentive for businesses to invest in the creation of jobs with higher wages. The capital gains credit favors investment in capital over investment in labor, creating potential distortions in investment decisions.

In addition, Montana’s capital gains credit does not distinguish between in-state or out-of-state capital investments and therefore does not create incentives to invest in Montana. In fact, taxpayers can claim the credit when they sell the stock of a company that has never done business in our state.

Tax Cuts to the Wealthy Do Not Grow the Economy

While Montana’s economy has grown over the past decade, research makes it clear that this growth is not a result of tax cuts. In 2003, some legislators that supported the tax cuts for the wealthy claimed that these measures would grow the economy and result in higher revenue. This has proven to be untrue. The Montana Department of Revenue concluded, in 2013: “it is unlikely that [the 2003 tax cut] had a significant short-run stimulus effect,” stating instead that the law primarily redistributed tax obligations rather than reducing them.[19] The then-director of the Bureau of Business and Economic Research at the University of Montana stated the data on whether the tax cuts had a statistically significant impact on economic growth was “simply inconclusive.”[20]

In an analysis of the impact of the 2003 legislation, the Montana Budget & Policy Center (MBPC) measured whether the 2003 tax cuts had a statistically significant change in the actual growth in Montana’s economy by comparing measures of Montana’s economy with other states.[21] By comparing economic growth in Montana to surrounding states, MBPC found, at most, negligible evidence that the economic growth Montana experienced over the past decade could be attributed to tax cuts.[22] Instead, Montana continues to lose nearly a hundred million dollars in revenue each year that could instead be invested in our communities.

Because tax breaks on capital gains benefit a small percentage of the wealthiest households, who are more apt to keep this money than spend it in local economies, studies show very little economic impact of these tax cuts. Mark Zandi, chief economist of Moody’s Analytics has noted that efforts to provide tax cuts for capital gains income provides a very low impact on economic growth, as compared with improving policies that help families living on low and moderate incomes.[23] Dozens of highly credible economic studies around the country show that there is little connection between cuts in individual income taxes for the wealthy and economic growth in either the short or long run. States that have raised taxes on the wealthy and used that money to invest in their communities, like Minnesota, have better economies than before the tax increases and resulting investments in public education and other community needs.[24],[25] A comprehensive review conducted by the Center on Budget and Policy Priorities noted that of the 15 major academic studies on income tax cuts conducted since 2000, over 75 percent found no significant economic effect of these tax cuts.[26] Since enacting the cuts, most states have actually had slower job growth than the nation as a whole and have seen their share of national employment decline.[27]

Rather than continuing the failed policy of tax cuts and resulting budget cuts, our best opportunity to support a strong economic recovery for everyone in Montana is to invest in our communities. We should strengthen support for K-12 education, expand access to post-secondary education and training, support families struggling to make ends meet, and increase good-paying jobs through investments in public infrastructure. One of the best ways we can ensure adequate state revenue and begin to properly invest in our communities is by ensuring that Montana’s wealthiest households – who have benefited from significant tax cuts both at the state level and at the federal level – pay their fair share.

Montana Should Restore Equitable Tax Treatment for Capital Gains Income

In order for Montana to rebuild to a brighter future for everyone, our state needs to invest in ways that build our workforce and our economy. Our best opportunity to realize economic growth for all Montanans is through investments in our communities. There are fair and effective ways to raise the revenue needed to pay for these public investments. They include ending tax cuts and loopholes that benefit the wealthiest.

Since its passage in 2003, the capital gains credit has cost Montana hundreds of millions of dollars that could have been invested in schools, families, and communities all across this state. Only a small percentage of Montanans benefited; over half of the benefit went to the wealthiest 4,713 households. Meanwhile, the vast majority (over 78 percent) of Montana residents do not receive any benefit from this tax break and instead pay a higher effective tax rate on income from wages. Continuing preferential treatment for capital gains income is unfair to hardworking Montanans who earn their income through wages and salaries. We cannot afford such a costly credit that benefits so few households.

Policy Basics: Taxation Authority in Indian Country

This report focuses on taxation authority and is the final of a five-part series that introduces readers to basic concepts in Indian Country. Taxation authority, or the power to tax, intersects with the topics of sovereignty, citizenship, land, and jurisdiction, all topics covered earlier in this series.

This report is not intended to fully capture the breadth and complexity of taxation authority in Indian Country. Rather, its purpose is to provide an overview of taxation authority today and what that means for tribal government revenues. For more on taxes in Indian Country, see the Montana Budget & Policy Center’s reports that focus on taxes as they relate to tribal citizens and tribal governments.

Exercising the power to tax is an important government function. Like all governments, tribal governments need revenue. Taxes fund public services like bridges and roads, schools, water and sewer systems, and so much more. However, non-tribal taxing jurisdictions have hamstrung the ability of tribal governments to raise needed tax revenue by challenging tribal governments’ once-exclusive taxation authority. This has clear consequences for tribal revenues.

Taxation Is Important to Tribal Sovereignty

It is important to begin with the fact that the power of tribal nations to tax is inherent to tribal sovereignty, or the inherent right of tribal nations to self-govern and to self-determine their futures. As discussed in the first policy basics of this series, the United States did not give tribal nations this right. Tribal nations have been sovereign since time immemorial. The same sovereignty that allowed tribal nations to enter into treaties with the United States is also what enables them to tax within the boundaries of their reservations.[1]

Taxation is important to tribal sovereignty for at least two reasons. First, it is an important tool of control. This could apply to the regulation of economic activity, for example. Second, taxes help to pay for te government programs, services, and functions on which we all rely.[2] Like any government, tribal governments need revenue to fund essential services and programs that, among other things, keep communities healthy, educate children, protect natural resources and land, and develop workforces. Taxes help to provide that revenue.

Overview of Taxation Authority in Indian Country

Tribal governments once held exclusive taxation authority in Indian Country. While the inherent right of tribal nations to tax is well-established, non-tribal governments have challenged tribal taxing power. In fact, taxation authority in Indian Country has been one of the most litigated issues between tribal nations and state and local governments. This is largely because federal tax policy in Indian Country leaves room for legal challenges between governments with overlapping jurisdictions and competing interests in terms of revenue needs.[3]

Over time, state and local governments have successfully challenged in court the exclusive right of tribal governments to tax within their own reservation boundaries to the point that tribal taxation authority is diminished today. This denies tribal governments much-needed revenue and means that tribal governments must provide many of the same services as other governments without the usual tax revenue on which those governments rely.[4]

It also means that many tribal nations must rely on natural resources, leases, and tribally owned enterprises as their only source of revenue outside of federal dollars. Even here, states have fought for the ability to co-tax certain economic activities involving non-Indians in Indian Country, extracting wealth from tribal communities and creating a system that can hamstring economic growth.[5]

To be clear, despite state and local government challenges to tribal taxation authority, tribal governments retain their sovereign power to tax. Yet, states generally assert their taxation authority when jurisdictions overlap. This undermines tribal taxation authority and worsens fiscal problems for tribal nations.[6]

Below is a basic overview of both tribal and state taxation authority in Indian Country. This section helps to illustrate how the actions of non-tribal governments have complicated taxation authority in Indian Country and how that limits revenue sources for tribal governments.

Tribal Taxation Authority

Because of their sovereign status, tribal governments can impose taxes on their citizens living on their reservations. Though, few tribal governments do this. One reason includes economic challenges, which are part of the legacy of settler colonialism. Among the few taxes that tribal governments in Montana assess are excise taxes on the on-reservation sale of alcohol, tobacco, and fuel and severance taxes on natural resource development. However, the state shares in this revenue. Tribal governments can impose taxes on certain activities of non-Indians on reservation trust land and on reservation fee land, but only when the tax passes certain tests.[7]

State Taxation Authority

In general, the state cannot tax tribal nations or tribal citizens on their reservation. As subdivisions of the state, local governments are subject to the same limitations.[8] Property taxes are an exception to this, as states and counties can assess property taxes on on-reservation fee land that tribal nations or citizens own. In the case of state income taxes, it depends on where tribal citizens both live and work.[9] Like tribal governments, the state can impose taxes on activities of non-Indians in Indian Country when the tax meets certain conditions.[10]

Federal, State, Local, and Tribal Government Revenue Sources

Given this history, it is no coincidence that tribal governments are generally on uneven footing with federal, state, and local governments in exercising their power to tax.[11] This section outlines the striking differences in revenue sources for federal, state, local, and tribal governments.

Federal Government Revenue

The federal government gets most of its money by collecting taxes and borrowing.[12] In 2019, tax revenue paid for nearly $3.5 trillion of the federal government’s $4.4 trillion budget.[13],[14] Of that, individual income taxes made up nearly 50 percent, payroll taxes made up about 36 percent, and corporate income taxes made up roughly 7 percent. Excise and other taxes made up the rest.[15]

State Government Revenue

According to the latest Montana Department of Revenue biennial report, taxes represent the largest source of state revenue (44 percent). Of tax revenue, individual income taxes make up the largest share (roughly 45 percent), followed by sales and excise taxes (14.3 percent), severance and other taxes (13 percent), and property taxes (10.6 percent). Other taxes make up the remaining share.[16]

Money from the federal government is the second largest source of state revenue (41 percent). This money includes federal pay

ments to the state for Medicaid and other state programs, as well as education funding for local school districts. The remaining revenue comes from other sources.[17]

Local Government Revenue

As with the federal government and the state, tax revenue is the largest revenue source for local governments (36 percent). Local government and school district tax collections come almost entirely from property taxes (96.5 percent). Like the state, local governments also receive money from other governments. Transfers from the state make up 35 percent of local government revenue, while federal transfers make up 6 percent of revenue. Other sources make up the remaining share.[18]

Tribal Government Revenue

Unlike other governments, tax revenue is an insignificant source of revenue for tribal governments. Nearly half (47 percent) of state and local revenue in Montana comes from taxes.[19] As mentioned above, the federal government used tax revenue to pay for almost 80 percent of its $4.4 trillion budget in 2019.

According to the Montana Department of Commerce, federal funding represents the largest share of revenue for tribal governments (roughly 58 percent). To be clear, most of this federal funding to tribal nations stems from the federal government’s trust responsibility to fund services, as articulated in treaties.[20] However, the federal government chronically fails to uphold this legally binding trust responsibility. For example, the Indian Health Service budget meets just more than half of American Indian health-care needs.[21]

Without a strong tax base, tribal governments rely on business revenues as their core source of revenue outside of federal dollars. The second largest revenue source for tribal governments is earned (nearly 26 percent), which comes from leasing activity, investments, and tribally owned enterprises, for example. The remaining revenue is a combination of state and other sources.[22]

Tribal Taxation Authority Is Good for Montana

Tribal governments retain their sovereign power to tax. Non-tribal taxing jurisdictions currently limit the ability of tribal governments to exercise that power and to provide essential services that benefit Montana. Honoring tribal taxation authority presents an opportunity to protect and enhance tribal government functions and services.[23] What is good for Indian Country is good for Montana.

Revenue: The Neglected Foundation for Kids’ Success

In Montana, we share responsibility for each other, and the strength of our children and communities depends on the vibrancy and cohesiveness of our diverse population. Montana kids and families do best when community health services are funded, students and teachers have what they need to provide a modern education for every child, and historical and current day policies that create barriers for American Indian children and families are eliminated. Where our kids start out should not determine where they end up.

Unfortunately, Montana ranks 26th in the nation for overall child well-being. We even rank lower than our neighboring states Idaho, North Dakota, and South Dakota.[1] For too long, Montana policymakers continue to allow tax cuts for special interests that have starved our state budget from the revenue we need to prioritize crucial programs for Montana kids. As a result, many children are walking into schools with failing heating systems, out-of-date technology, and teachers who are stretched too thin leaving students without the full support they need to succeed. Many of these children are in families struggling to cover the basic necessities, like nutritious food, stable housing, and quality early childhood care.

It is not too late for Montana to chart a new course to improve child well-being. This work starts with sound tax policies that ensure a fair tax system that generates sufficient revenue to support programs and services to improve the lives of children. Specifically, Montana policymakers should:

  • Enact tax fairness measures that will provide the revenue to invest in early childhood education, quality public schools, and childhood health and safety;
  • Recognize tribal nations’ sovereign tax authority and their efforts to provide essential services for their communities; and
  • Bolster support for Montana families and children through expanding the state’s earned income tax credit, establishing a property tax circuit breaker for families living on lower incomes, and enacting a state child tax credit.

Revenue Unleashes Kids’ Potential

Montana is falling behind other states, resulting in a lower quality of childhood health. Montana ranks 44th in the nation for childhood health.[2] When our children struggle, it is the sign of a deeper problem.

It means our families, communities, and economy are struggling. Policies like public pre-kindergarten (pre-K), investments in public school infrastructure, and childhood health can improve health and well-being for Montana’s children. These investments pay off enormously over time.

One of the most important investments we can make to ensure our children’s success in kindergarten and beyond is early childhood education. Yet, Montana is one of only six states that have not funded statewide public pre-K, providing four-year-old children with access to quality early childhood education. High-quality preschool helps prepare children to enter school with stronger cognitive and emotional skills and promotes better economic and health outcomes over a lifetime.[3] Investing in quality early childhood education is good for the state too, as it produces a 13 percent return on investment through greater academic achievement, higher graduation rates, reduced crime, and increased lifetime earnings.[4] Quality early education also improves health outcomes for children through nutrition programs, increased health and dental screenings, and improved child and parent mental health.[5] Montana should follow the lead of almost all other states and invest in the education of our earliest learners.

High-quality infrastructure helps kids learn, improves student outcomes, and reduces dropout rates.[6] The average age of Montana school facilities is 53 years, with well over $300 million in needed repairs. [7],[8] In 2017, the Montana Legislature restructured school infrastructure funding into two funding mechanisms: school major maintenance and debt service assistance. The school major maintenance fund provides for large, periodic investments, like new boilers or roof replacements, by subsidizing districts’ investments in these improvements on a prorated basis, depending on the taxable value per student (districts with lower property values who raise less money per mill receive more state assistance). The debt service assistance program helps districts fund new construction and major renovations. Montana should fully fund investments in school infrastructure to ensure that regardless of race, place, and income level, our children are walking into schools with resources to help children learn in the 21st century.

Too many children in Montana are slipping through the cracks without adequate support and services. The suicide rate is a national issue, having increased for 13 years in a row, but it is even more pronounced in Montana.[9] Montana has the second highest rate of suicide in the nation. Montana youth are dying of suicide almost three times as often as the national average.[10] As the long-term, intergenerational impact of colonization, cultural suppression, and oppression of Indigenous people has created a system where Indigenous youth experience higher rates of behavioral and mental health challenges and disproportionately high rates of suicide.[11] In 2017, 10 percent of all high school students in Montana reported suicide attempts within the last year, while nearly one-quarter of American Indian high school students on reservations reported suicide attempts (23 percent).[12] Montana can improve life outcomes for our children with ongoing investment in trauma-informed youth suicide prevention and education, with a focus on American Indian children.

In addition to the lack of critical investments in our children, tax policies that impose higher tax rates on families living on lower and middle incomes than the wealthy exacerbate the racial wealth gap. While in recent decades, people of color have made progress in many areas, state and local fiscal policies too often have not been part of this progress and instead have extended or cemented racial disparities in power and wealth.[13] For example, the structural changes to Montana’s tax system in 2003 that collapsed the number of income tax brackets from 10 to 6, lowered the top tax rate for personal income tax, and created a credit for capital gains increased the racial wealth gap, as white families in the nation are three times more likely to be in the top one percent of taxpayers than families of color.[14]

Luckily, there are many options that can help improve the fairness of Montana’s tax system while raising needed revenue for our children. Montana policymakers have a menu of options that will make Montana’s tax code fairer and raise needed revenue for essential services. These measures include:

  • Restoring a top income tax bracket on the wealthiest (those making more than $500K annually);
  • Closing corporate tax loopholes;
  • Eliminating unfair business tax breaks;
  • Asking wealthy Montanans to pay a higher tax rate than those living in poverty; and
  • Updating our tax code to reflect the current economy.

These common sense solutions can raise almost $250 million, which can be used to improve outcomes for Montana’s children, ensuring a more robust economy for future generations.

Revenue in Indian Country

Kids do best when their communities have adequate revenue for education, public health and safety, and infrastructure. A long history of systemic racism and current day discriminatory practices have erected barriers that hold many American Indian children back from reaching their full potential. These barriers include the lack of jobs for their families, unaffordable or unavailable quality childcare, and a shortage of transportation options. In fact, 39 percent of American Indian children live in high poverty areas, compared to 7 percent of all Montana children.[15] High poverty areas are areas where 30 percent or more of the population are experiencing poverty (income of $21,720 or less annually for a family of three).

While tribal nations operate many of the same public services as other levels of government like maintaining roads, bridges, and other infrastructure; providing housing; and maintaining public order and safety, they often do so with fewer revenue sources and limited taxing authority. A history of legal battles and discriminatory legislation have diminished tribal nations’ exclusive authority to tax within their own reservation boundaries. Tribal self-sufficiency and self-government depend upon a tribe’s ability to raise revenue and regulate its territory.[16]

Exempting tribally owned fee land from property taxes, as it is done for federal, state, and local governments, would give tribal communities the same latitude as other governments in Montana to provide essential services and economic contributions to the state. Montana should also clear up taxation authority of tribal nations by enacting laws that defer to tribal nations for taxation on reservations, such as reservation sales and use taxes or tribal utility or severance taxes. These efforts will allow tribal governments to begin to adequately fund services and programs for their children and communities, like state and local governments throughout the state.

How Improving Tax Policies Will Help Families 

Montana’s tax system requires those living on the least to pay a higher tax rate than the wealthy.[17] Montana can do better for these families and make it a little easier to support their children. Tax policies targeted to families, like the earned income tax credit (EITC), property tax circuit breakers, and the child tax credit can help Montana families afford necessities like clothing, school supplies, food, rent, and transportation. 

Tax Credits for Working Families

The federal EITC is the most effective anti-poverty program in history, lifting millions of families and children out of poverty. In 2017, the Montana Legislature passed a refundable state EITC on a healthy bipartisan vote. It is set at 3 percent of the federal EITC, effective for the 2019 tax year.[18] Approximately 74,000 working Montana families with low incomes benefit.[19] However, the state benefit is currently maxed out at $192, making it the weakest state EITC in the nation.[20]

Increasing the state EITC to 20 percent of the federal credit would further help Montana families provide for the needs of their kids. Coupled with the federal EITC, a 20 percent state EITC is equivalent to a wage increase of $3.78 an hour for a parent raising three children.[21] Supplementing the wages of working families allows parents to provide for their children and purchase needed goods locally.

Property Tax Help for Montanans on Low Incomes

While state policymakers continue to research and debate the level of property taxes in the state, any property tax reductions should be targeted to those who need it the most. Property taxes are regressive, meaning families living on lower incomes pay a larger share of their income in this tax than wealthy families. Property tax circuit breakers prevent property tax overload just like an electric circuit breaker: when the property tax bill exceeds a certain percentage of the taxpayer’s income, the circuit breaker reduces the property taxes in excess of the circuit breaker.[22]

With residential property taxes making up more and more of the total share of property taxes over time, homeowners and renters are feeling the pinch of high property taxes. Due in part to legislative decisions to exempt business property from the tax base and a lack of state investment leaving communities to pick up the slack, in the last two decades, the share of property taxes falling on the backs of individual homeowners has risen – from 34 percent in 1994 to more than 48 percent today.[23] A property tax circuit breaker would target property tax relief to families who need it most.

Tax Credit to Help Parents Make Ends Meet

The federal child tax credit (CTC) is designed to provide an income boost to parents or guardians of children and other dependents, helping working families offset the cost of raising children. This tax credit is a powerful weapon against poverty, lifting 4.3 million people nationwide out of poverty in 2018, including about 2.3 million children.[24] In fact, one of the best ways to help families afford the heavy cost of child care is to invest in a state child tax credit.

Currently the federal CTC is nonrefundable meaning the lowest income families cannot reap the full benefits of the credit. Montana can help the families struggling the most and lift children out of poverty by adopting a fully refundable state child tax credit. For families currently not receiving the full $2,000 per child federal tax credit, they would receive a state-level refundable credit bringing their combined state and federal credits to the full $2,000 per child.[25] This incredibly progressive tax credit would target the greatest benefit to the families with the lowest incomes (those earning up to $36,400 annually), with the credit tapering off as income increases. With this credit, Montana would see a reduction in child deep poverty of greater than 15 percent.[26]

A Montana Children Can Count On

Montana has a chance to improve the lives and futures for our children. By better balancing our revenue system, we can invest for the long term and ensure opportunity for the next generation. Investing in our families through education, healthy food, and safe communities can help our children live the lives we hope for them.

Montana can learn from other states who have used thoughtful state revenue policies to improve the lives of children. A few years ago, Minnesota was struggling. The state was not raising enough money to fund schools or keep a competitive economy, and the tax system was becoming increasingly unfair.[27] In 2013, Minnesota raised the income tax rate by two percentage points (to 9.85 percent) for those making over $250,000.[28] The revenue allowed the state to invest in schools, health care, affordable college education, job creation, and more.[29] Minnesota moved from a state ranking for childhood well-being of 6th in 2012 to 3rd in 2013, and 1st in 2015.[30]

Montana can do better for our children by following the lead of states like Minnesota who have chosen to progressively raise revenue and put it into programs that are proven to improve the lives of children and families. Allowing tribal nations to raise revenue to provide for local needs like infrastructure, schools, and public health and safety puts children in all communities on more even ground across the state.

This is the time to take bold action to improve child well-being in Montana. Cleaning up Montana’s tax code is how we will pay for the building blocks of opportunity for every child in Montana, building a brighter future for all of us.