Bozeman lawmaker wants to stop tax break for millionaires

Bozeman Daily Chronicle – March 23, 2017

A Bozeman legislator on Wednesday called for ending a capital-gains tax break that has benefited an average of 400 millionaires annually and using the savings to fill holes in the proposed state budget.

Democratic Rep. Jim Hamilton told the House Taxation Committee his House Bill 598 would raise about $11 million a year in needed state revenue. It is one of Gov. Steve Bullock’s proposals to increase taxes to help balance the state budget.

“What we’re doing is reducing what had been a very generous benefit,” Hamilton said. 

However, opponents to the bill, such as George Olsen of the Montana Society of CPAs, said raising state taxes on higher income people would send the wrong message if the state is trying to attract new businesses.

The bill would terminate the capital gains credit on taxpayers with adjusted gross incomes of more than $1 million annually.

Under a major overhaul of Montana’s income tax system passed by Republicans in 2003, the Legislature lowered the top marginal income tax rate from 11.9 percent to the current top rate of 6.9 percent. It also created a 2 percent tax credit for capital gains income, which is the profit made from selling stocks, property and other investments.

So under the 2003 law, income from capital gains is now taxed at a 4.9 percent rate, while regular income exceeding $17,400 a year is taxed at the top rate of 6.9 percent.

Hamilton said the capital gains tax break has saved millionaires and cost the state treasury more than $60 million over 11 years.

“I think it’s time we ask those beneficiaries of the change to pay taxes again at the regular income tax rate,” he said. “Why wouldn’t we ask this group to share in the sacrifice that we’re asking a whole lot of Montanans to share?”

Montana is one of only six states offering a preferential capital gains tax rate, he said.

State Revenue Director Mike Kadas endorsed the bill, saying the 2003 changes in the tax code, including the capital gains tax credit, were pitched as a way to grow Montana’s economy. However, he said, the department’s research shows that the capital gains tax credit change has had no impact in how Montana’s economy has grown.

Eric Feaver, president of the MEA-MFT union, also supported the bill, adding: “We need the money.”

Others backing the bill were the representatives of the Montana Budget and Policy Center, Montana Associated Students, Associated Students of the University of Montana, the Montana Human Rights Network and Montana Women Vote. 

In opposing the bill, Olsen of the CPAs group said HB598 would unfairly penalize taxpayers who have a single large event such as selling a ranch or a business in which they have large capital gains for one year and not in other years.

Bob Story of the Montana Taxpayers Association agreed, saying the group has always contended there are a number of people who wind up in the top tax bracket because of a “significant event.”

“There was a policy decision to give preferential treatment to capital gains,” he said. “To back away from it now is not the way to go.”

In response to a question later, Revenue Department tax analyst Dan Dodds said researchers looked at 2010 tax returns for those taxpayers who had capital gains of more than $1 million a year and checked each of their tax returns all over the next five years.

“People who have large capital gains in one particular year are very likely to have large capital gains in other years,” Dodds said. “They are also likely to have large incomes every year.”

The Montana Chamber of Commerce also opposed the bill. 

The House Taxation Committee didn’t take immediate action on the bill.

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