Lawmakers on the House Taxation Committee on Tuesday voted down legislation expanding Montana’s earned income tax credit and adding a tax bracket for top earners just an hour after the bill had its first hearing, leaving Democrats to look for other ways to bolster what they say is one of the state’s most successful anti-poverty measures.
House Bill 424, proposed by Rep. Emma Kerr-Carpenter, D-Billings, would have increased the state earned income tax credit from 3% of the federal credit to 10%, offsetting that expenditure by creating a new tax bracket in which income above $500,000 is taxed at an 8.9% rate.
The so-called “Robin Hood” bill, as Kerr-Carpenter called it, would increase taxes for around 5,000 Montanans in order to increase the tax credit amount for the more than 70,000 who received a state EITC in 2019.
As an example, the maximum federal earned income tax credit in the 2019 tax year was $6,557 for a family with three or more qualified children. A qualified Montanan that year would receive an additional 3% of that sum — or around $197, in the case of that hypothetical family. If the state tax credit that year was 10%, as is proposed in this bill, the family would instead receive more than $650 on top of their federal EITC.
“These are low-income folks who are getting an influx of a good amount of cash,” Kerr-Carpenter said. “Northwestern (Energy) can see it in their books, tire companies can see it in their books. It’s good policy, that’s the smart thing to do.”
However, adding an extra top tax bracket in Montana — something the state hasn’t had since 2003, when lawmakers condensed the bracket and sliced top income tax rates — didn’t sit well with the Republican lawmakers and right-leaning business groups that are pushing for the opposite policy.
The House Taxation Committee voted down the bill 12-6 with little ceremony. Lawmakers are looking to clear as much legislation off the calendar this week as possible before the March 3 deadline to pass bills from one chamber to the next. But HB424, as a revenue bill, isn’t subject to the same time limit.
“I wasn’t shocked that it got tabled, but the swiftness was kind of amazing,” Kerr-Carpenter said.
Representatives from both the Montana and Billings chambers of commerce spoke against the bill Tuesday, arguing that it would send the wrong signal to business owners and high earners.
“It’s important for this committee and the legislature as a whole to consider, when you’re looking at legislature that has to do with taxation, the message the state would be sending when it comes to what you’re telling those individuals who are positioned to create economic opportunity for others” said Bridger Mahlum, government relations director for the Montana Chamber of Commerce. “We’re talking about job creators, charitable contributors, capital investors et cetera.”
The state Legislature created a state earned income tax credit in 2017 on a bipartisan vote, modeling it after the federal credit enacted in the 1970s. Only working Montanans at certain levels of earned income qualify. The federal EITC phases in and out depending on a filer’s income in a given year; Montana’s credit does the same, as it’s pegged to a percentage of the federal tax credit.
Working-class Montanans use the money they received from the credit to pay utility bills, buy braces for their kids, make long-awaited vehicle repairs and more, advocates told the committee Tuesday.
Increasing the top tax rate would also “works to level Montana’s state and local tax system,” which has had an especially regressive tax structure since the 2003 cuts, said Heather O’Loughlin of the liberal Montana Budget and Policy Center.
“Those in the lower income quintiles are paying a greater share of their income in state and local taxes than those in the higher income quintiles,” O’Loughlin said.
Proponents of the bill cited a 2012 study from the state Department of Revenue which found that the 2003 cut — which “reduced income taxes about one-fourth, or an average of $10,000 per year, for taxpayers with incomes over $250,000 per year” — had no consistent effect on in-migration of the “job creator”-types that Mahlum mentioned, though the state regardless has gained more residents than it’s lost in the years since.
The impact of taxation on the wealthy is up for debate in several venues this session. Not long after Republican lawmakers killed the EITC bill, the Senate gave preliminary approval to two proposals from the governor’s office to slice top-rate income taxes by tens of millions of dollars over the next several years
Despite the defeat of the HB424 Tuesday, Democrats say they’re intent on continuing the push for an expansion of the state EITC, with Kerr-Carpenter calling her bill the “opening bid.”
“We’re hoping to get some energy about it later in the session,” said House Minority Leader Kim Abbott, D-Helena.
Changes could come to the breadth of the expansion, the tax increase associated with it and so on.
“What we’ve said from the beginning is we want to deliver for Montanans — being in the minority, that’s going to involve compromise,” Abbott said.