A state analysis finds Montana income-tax cuts that took effect last year added up to far greater sums than projected, and nearly half of the benefit went to households with annual earnings of $500,000 or more. Because of lower tax rates, Montana households paid $100 million less in state income taxes last year, according to the state Revenue Department report prepared at the request of Lee Newspapers. About $48 million of that reduction went to the 1,586 Montana households that reported annual income of $500,000 or more in 2005, the report said. Tax reductions for the upper-end households averaged about $30,000, the report said. The 2003 Legislature passed a measure for tax cuts to begin in 2005. At the time of the legislative action, officials in the administration of then- Gov. Judy Martz projected that the cut would total $26 million statewide, for all taxpayers, and that households earning more than $500,000 would get a total of $6 million in cuts. The larger reductions are not surprising and are good news for Montana, supporters of the tax cut said Friday. “This evidence shows that not only is (the tax-cut proposal) working, but it’s working even better than all of us who supported it had promised,” said Sen. Joe Balyeat, R-Bozeman. “We’ve got lower, more reasonable tax rates for everybody, faster-growing wages and we’ve got a (state) treasury surplus. There should be nothing for our opponents to complain about.” Economic studies have shown that reducing upper-income tax rates leads to wage growth in all income-earning sectors, Balyeat said. Senate Majority Leader Jon Ellingson, a Missoula Democrat who voted against the tax-cut bill, said the 2005 figures show the cuts “were completely inequitable.” The wealthy are the leading beneficiaries of the cuts, and there is no evidence the tax law powered the surge in state revenue the past two years, Ellingson said.
“The argument that we can jump-start our economy by cutting one tax or another has never been substantiated by the data,” Ellingson said. Dan Bucks, state revenue director, said his agency’s analysis was based on 2001 income-tax data. The economy has since grown dramatically, Bucks said, but the income growth went mostly to people already wealthy. Thus, he said, the higher-thanexpected tax cut for well-off households. Highlights of the report released this week:
Tax cuts for the lowest income brackets, those earning less than $25,000 a year, were slightly higher than expected. Their cuts averaged $22 per household. They also had the highest proportional reductions, up to 52 percent.
The 81 percent of Montana households earning less than $65,000 a year had a total tax savings of about $7 million, or 7 percent of the total. The amount is $1 million less than projected in 2003.
Middle-income earners averaged the lowest proportional tax cuts, in the range of 1 percent to 3 percent. Those earning more than $120,000 a year averaged tax cuts of 10 percent up to 27 percent, for the highest earners.
About 65 percent of taxpaying households had tax changes under $50. Twenty-nine percent had a decrease of more than $50 in 2005, and 6 percent had an increase of $50 or more. Most of the latter earned $40,000 to $100,000.
The legislation cut Montana’s top tax rate from 11 percent to 6.9 percent and made that rate apply to all taxable income over $13,900.