Now that spring is in the air, 2016 seems like a long time ago. But it took until today – April 4th – for women to finally earn as much money as a man did in 2016. With such a significant pay disparity between men and women, women have to work three months longer into the next year to make the same amount that men make in a single year.
In Montana, women still are paid only about 67 cents for every dollar a man earns in spite of the fact that more women than ever are the primary breadwinner. In about 40 percent of U.S. households with children under age 18, mothers are the sole or primary breadwinner. For female-headed households, it hurts a lot more when women aren’t paid fairly.
The good news is that a state Earned Income Tax Credit (EITC) could help boost the pay of thousands of low income women. The legislature is considering HB391, which would create a state version of the federal EITC, a tax credit paid to working adults. The Center on Budget and Policy Priorities estimates that 22,000 single mothers in Montana would benefit from receiving the EITC.*
But the EITC does far more than just provide a little extra cash for families. Studies show that the EITC has encouraged large numbers of single mothers to increase the amount of hours they work, and reduce their reliance on social safety net programs. In turn, this increase in hours worked leads to higher wage growth down the road, as well as greater Social Security retirement benefits. The EITC’s impact on employment actually doubles the anti-poverty effect of the EITC for families.
Furthermore, the benefits of the EITC for women aren’t purely financial. Research has also shown that it reduces the rate of low-weight and premature births and improves the health indicators of the mothers. In these studies, women who have received increases in their EITC were more likely to receive prenatal care.
For thousands of workers in Montana, a state EITC could have significant impacts for parents and children alike. In total, 80,000 low- and moderate-income families in Montana stand to benefit from this credit. But for 22,000 single mothers, the EITC can provide additional important benefits that will help improve the stability and health of the entire family.
All hard-working Montana families should get the pay they deserve. While we may have a long way to go in order to minimize the disparity in pay between men and women, a state EITC can be a positive step to reduce the harm this gap causes. Our state legislators should enact a state EITC and improve the lives of thousands of working mothers and their children.
* CBPP estimates based on data from IRS, unpublished data from the Brookings Metropolitan Policy Program, and CBPP analysis of the Census Bureau’s March 2010-March 2014 Current Population Survey
When a new baby enters the family, everyone’s life turns upside down. While mothers might need paid leave while they recover from childbirth, it is vital that fathers are also home to participate in family life during those earliest days.
As we wrote about yesterday, the legislature is considering H.B. 392, which would establish a family medical leave insurance program (FAMLI). The FAMLI Act would combine small amounts from employees and employers (less than one percent of wages) to create a dedicated funding stream for workers when they need time off to care for themselves or a loved one. From these small contributions, workers would receive a portion of their wages while on leave.
But it’s not just new mothers who need paid leave. When fathers are able to take even just two weeks paternity leave, they are more active caregivers – feeding, changing diapers, and rocking the baby to sleep in the middle of the night, even well after he has gone back to work. The more engaged fathers are with their children, the better developmental outcomes are for the kids, from improved cognitive ability to fewer behavioral problems.
While paid paternity leave has obvious financial benefits for the dad, it actually can boost employment and earnings for moms too. Studies from Canada and Sweden show that when men take leave, women are better able to return to work because they have a trusted and affordable source of childcare at home.
Right now, only 13% of men have access to paid leave, meaning that many fathers take far less time at home with their families than they would prefer because they simply can’t afford it. In California, a state with a similar paid leave program, one-third of men took time to bond with their children in 2014, compared to only 21% in 2007. This increase in popularity shows that men want to spend time caring for new family members, when they can afford to do so.
Paid leave provides both men and women the opportunity to provide for their families physically and financially. The benefits of an involved dad last far longer than the just during the newborn days – they can last a lifetime.
Paid leave benefits many types up families as well, including workers who have aging parents to care for, or someone who is facing a serious illness. For single workers who might not have other means of support, paid leave can be a lifeline. Everyone benefits when they have the ability to provide for their family.
Paid leave models like this have been successful in other states, and are an important measure that benefits both families’ health as well as their financial stability.
If you want to read more about the benefits of paid leave, be sure to check out MBPC’s series on the topic.
When faced with an illness, caring for a loved one, or a new child entering the family, many Montana workers are forced to choose between taking time off to care for their family, and financial stability.
But a new bill before the legislature (H.B. 392) gives Montanans a chance to provide for the families to face these hurdles without taking a financial step back. The Montana Family and Medical Leave Insurance Act (the FAMLI Act) combines small amounts from employees and employers – less than one percent of wages into a pool, from which eligible workers could receive a portion of their wages while on leave.
While the Family and Medical Leave Act (FMLA) of 1993 provided workers with some job security, the law only guarantees unpaid leave. Without pay, many workers are not able to take as much time off as they need to adequately take care of themselves and their families. And if they do, the loss in wages may mean difficulty paying the rent or putting food on the table.
Some companies do provide paid leave, but they are the minority. Less than a quarter of workers in the private sector had access to any type of paid sick or family leave.
And when families and workers miss out on wages, everyone suffers. Not only do families face financial insecurity, but the local businesses where they would have spent their wages do as well. Small businesses who wish to not only take care of their workers, but also compete with the benefit packages larger companies offer, benefit from a more equal playing field.
California, New Jersey, and Rhode Island have instituted paid leave programs for workers in their states, and have been reaping the benefits for years. In fact, one study found that women who used paid leave were less likely to need public assistance and Supplemental Nutrition Assistance Program (SNAP) benefits. The study also found that women were much more likely to be working within the year after their birth, and also had higher wages. Montana has the opportunity to see the same benefits by enacting the FAMLI Act.
Paid family leave can help strengthen the economy, local businesses, and improve the economic and physical health of families. A cost effective program like the FAMLI Act can help strengthen all working Montanans and their loved ones. It’s time for paid leave in Montana.
To read more about how paid leave could benefit Montana, be sure to read MBPC’s report: Helping People Balance Work and Family: It’s Within Montana’s Reach.
The 2017 Montana Legislature has been marked with concern over massive budgetary cuts and the major shortfall in revenue. While not all cuts can be avoided, the legislature should take a balanced approach to ensure the state can continue to invest in our families and communities. This includes ensuring we have adequate revenue in the state by putting in place common sense measures to ensuring wealthy corporations are paying their fair share.
Earlier this session, the House Taxation Committee heard House Bill 215, an act revising the rate of tax for certain oil and natural gas production. Reducing or even eliminating this tax break, called the oil and gas tax holiday, is one step toward balancing the budget and making sure corporations are paying their fair share. Unfortunately, the House Taxation Committee tabled HB 215 earlier this week.
The oil and gas tax holiday is a policy that allows newly drilled wells to be taxed at a substantially lower tax rate during the beginning of production. Wells, however, produce significantly higher amounts of oil and gas at the start of usage, which means these oil companies receive this tax break during the most profitable period of extraction. While some argued these tax holidays attract developers and increase revenue, the data clearly shows such tax holidays only suppress potential state revenue and does little to increase developer interest.
Montana, despite its lower tax policies, is not outperforming neighbors with higher tax policies. Wyoming, New Mexico, and North Dakota all have higher taxation rates for oil companies. All three states have consistently out produced Montana in terms of barrelage. Oil and gas companies do not seek to drill based upon the tax policy of that area. They drill where there are natural resources available.
Montana has lost millions of dollars in revenue due to this tax policy. From 2008 to 2014, the tax holiday cost the state and counties $265 million in revenue. This money could have been used to pay for public services, such as schools and roads. In oil-producing counties, especially those near the Bakken region, they have been forced to deal with increased demand on their infrastructure, but no increased revenue to update such necessary services.
HB 215 proposes to increase in Montana’s production tax would to 4.5 percent, which is still lower than the national standard of 9.26 percent. But even this small step is crucial in insuring our legislature can make strategic investments in Montana communities.
The increased revenue could be used to assist in failing infrastructure, public services, and our schools and universities. Oil and industry should not get a free ride in this state. We all need to pay our fair share especially when so many Montanans are struggling with significant budget cuts.
On Thursday, the Senate Taxation Committee will hear Senate Bill 105, repealing the water’s edge election for corporate income tax purposes. The water’s edge election represents a multi-million dollar giveaway to large multinational corporations operating in Montana, and SB 105 aims to level the playing field for Main Street businesses across the state while also ensuring we have adequate revenue here in Montana to invest in our communities.
What is the water’s edge election, and why should we eliminate this corporate tax break?
First we need a refresher on combined reporting, which is the way Montana taxes corporations. Many large companies consist of a parent company and its subsidiaries. Combined reporting requires a parent company to add its income and its subsidiaries’ incomes for the purposes of state corporate income taxes. Montana then taxes its share of the total income based on the level of activity in Montana as a percent of the company’s total activity. States without combined reporting are vulnerable to a wide array of tax avoidance strategies by corporations which usually involve artificially shifting profits to subsidiaries that are in states without corporate income taxes or that do not tax a specific type of subsidiary.
Combined reporting ensures that corporations pay their fair share of taxes in Montana based on their corporate activity in Montana. In addition, it levels the playing field for smaller Montana-based companies that do not have subsidiaries across the country to which they can shift profits.
Montana requires worldwide combined reporting, which means that corporations with common ownership must report all income worldwide basis. Montana provides an exception to this rule, called the water’s edge election, which allows multinational corporations to only report their income within the borders of the United States, rather than their worldwide income. In exchange, these companies agree to pay a 7% tax rate, rather than the normal rate of 6.75%. The number of corporations that filed a water’s edge election in Montana increased 226% from 2007 to 2012.
There are some limits to the water’s edge exclusion. If a subsidiary is located in a country that is a known tax haven, the corporation may not exclude that subsidiary’s income even under the water’s edge election. In order for this exception to be useful and avoid inappropriate income shifting, the list of tax havens must be updated regularly in Montana law. Unfortunately, the Montana legislature has failed to update the list of tax havens in past sessions.
A cleaner way to address the inequities and level the playing field for Montana small businesses would be to eliminate the water’s edge election entirely. The Governor has called for the elimination of the water’s edge election in his budget, and the Senate Taxation Committee will hear Senate Bill 105 to do just that. The bill will eliminate the ability of multinational corporations to shift profits overseas without paying state corporate taxes reflecting actual operations in the state. We need out-of-state corporations to pay their fair share for the schools, roads, and bridges they rely upon for the success of their business.
MBPC recently wrote a report on how Montana taxes corporations. You can read that full report Policy Basics: Montana Corporate Income Taxes.
For the past few months, Montanans have been hearing about the current shortfall in revenue in this past year than the legislature previously projected. This reality will make this biennium’s budget debate tougher than the past few sessions. While targeted cuts are likely in the face of this leaner revenue projection, it is also important to remember that the investments we make – from quality schools, improved roads, and public safety – help create thriving communities where we can all live and work.
As the budget moves forward, we will walk through some of the terms and what legislators are considering during the debates.
One budget cutting measure often used is “vacancy savings.” Vacancy savings is the difference between what it would cost to fully fund all of an agency’s approved positions and what is actually spent for personal services because positions were vacant for part of the year.
The Legislature can mandate a certain amount of vacancy savings by appropriating less than the amount needed to fully fund all of an agency’s positions. When vacancy savings are higher than naturally occur because of turnovers, agencies must leave positions open for longer than normal or decide not to rehire.
Since 2003, most agency budgets have included a four percent vacancy savings rate. This rate has fluctuated in past sessions. In this session, the Governor’s proposed budget reflects a four percent vacancy savings for most agencies. However, the joint Appropriations and Finance & Claims Committees are considering even further cuts from the Governor’s proposed budget, including an additional two percent vacancy savings.
While some will argue vacancy savings as a harmless cost cutting measure, the reality is that vacancy savings results in the loss of state jobs and potential of services to be cut or reduced in communities. State agencies that we all rely upon must continue to do more with fewer resources and fewer staff. The effects of these cuts are seen across the state, in both small and large communities.
However, there is something the legislature can do about our current financial position – we can bring in more revenue. There are a variety of ways we can make our tax system fairer and raise much needed revenue for our public schools, higher education, health care, infrastructure, and public safety. We can close loopholes and stop the unfair tax breaks that benefit the super wealthy and out-of-state corporations. We can make sure that we are all pulling our weight and have enough revenue to invest in our communities.
Every two years, the Governor of Montana releases their budget proposing investments to support our communities, including education, workforce development, and infrastructure. The budget becomes the marker for what the legislature will consider in the upcoming session. Yesterday, Governor Bullock released his proposed budget for the 2019 biennium (fiscal years 2018 and 2019). Over the course of the next week, we will highlight some of the key components of the budget and walk through some of the logistics on what happens now.
Today, we start with high-level overview of the budget and some of the tax fairness measures that will be up for discussion in the session.
But first, we need to set the stage for what the Governor was facing as he put together this biennium budget. Over the past year, the state has experienced lower revenue levels than previously projected. While the state initially estimated that we would begin the 2017 session with a strong ending fund balance of over $300 million, that amount now stands at around $120 million for the start of the session.
What has happened to cause such a shift? One of the primary reasons is lower oil and gas tax collections as a result of lower production and price. Montana has also seen a slight dip in individual income tax and corporate income tax collections. Both Legislative Fiscal Division and the Governor’s budget office have forecasted that this drop of revenue is short-term – both agencies anticipate revenue growth rate to begin to pick up again in FY2018 and FY2019. (It is worth noting that while revenue in Montana has been strong over the past 5 years, we have lost nearly a billion dollars in the past decade due to tax cuts aimed at wealthy households.)
To address the revenue drop – at least, in part – the Governor’s budget proposes a series targeted tax fairness measures that will also improve our current levels of revenue. Now, to be clear, the Governor’s budget also proposes across-the-board cuts to nearly every state agency. But by addressing the inadequate levels of revenue in the state, he’s been able to lessen the cuts and provide strategic investments in infrastructure, schools, quality child care and early childhood development, economic development in Indian Country, and an increase (albeit modest) in wages for state employees. We will dig into some of these sections on the expenditure side in future blogs. Today, we want to give everyone some background on the tax fairness measures the Governor is proposing.
Earlier this year, we released a report that provided an overview of levels of lost revenue in Montana as a result of tax cuts in 2003 that primarily went to the wealthiest households. Before 2003, Montana had ten income tax brackets with a top marginal rate of 11%. The 2003 legislation eliminated (or collapsed) nearly half of those tax brackets and lowered the top rate to 6.9%. Today, an individual working full-time at minimum wage (about $16,700 a year) now has the same top tax rate as someone making $1 million. The 2003 law also created a tax break for income coming from investments (as opposed to wages). Today, an individual who earns a living through wages is actually taxed at a higher rate than someone making the same amount of money but through investments, like selling stock. Montana is one of only nine states that provide this tax advantage to investors, and it cost the state nearly $30 million in 2013.
Overall, these tax cuts have cost the state hundreds of millions of dollars in lost revenue, with 55% of the benefit going to the wealthiest 1% of households. This effort also made Montana’s overall tax system more regressive. Lower-wage families pay a higher portion of their earnings in state and local taxes (6.1 – 6.3% of income) than highest-income households (4.7% of income).
The Governor’s budget restores a higher top tax bracket, but it will only apply to those with annual incomes over $500,000 (less than 1% of households). This top tax bracket would be set at 7.9%. The Governor has also proposed scaling back the tax advantages to wealthy investors – by capping the beneficial tax treatment on the first $1 million in annual capital gains income. The budget also proposes to bring about parity on the state deduction for federal taxes paid. Montana is one of only six states that allow taxpayers to take a state deduction for federal taxes paid. This expenditure benefits those who itemize their deductions (primarily higher-income households), and costs the state over $65 million in 2013. The deduction is capped ($5,000 for individual; $10,000 for couple), but that cap doesn’t apply to estates and trusts. This disparity in tax fairness costs the state roughly a million dollars a year. The budget would apply the deduction cap equally.
The Governor has also proposed providing some additional support for Montana’s working families. In Montana, our income tax system makes it even harder for many low-income, working families to provide for their basic needs. Montana begins taxing a two-parent family with two children at a lower annual income than nearly all other states in the country. We begin taxing such a family when their income reaches $13,480 per year (about 55 percent of the federal poverty level). And as mentioned above, when factoring in all state and local taxes, this family is likely paying a higher portion of their wages in taxes than the top 1% of households. To address this inequity and give working families a leg up, Congress created the federal earned income tax credit. Nearly half of states have followed suit by creating a similar state credit. The earned income credit is tied to work – a taxpayer must be working in order receive the credit, and the amount phases down as a family earned more. In 2015, this proposal passed with bipartisan votes in House Taxation Committee and second reading on the House. Nearly 80,000 working families in Montana would benefit from a state earned income credit.
The budget also includes proposal to make corporation income tax fairer and increases to some consumption taxes. Stay tuned for more information on those in blog posts later this month!
Incomes across the nation rose in 2015, according to the Census Bureau, with Montana making the biggest leap forward.
In 2014, the average Montana household had an income of $46,000. Last year, the median income was $49,500 – an increase of 6.8%, the largest in the country. The United States on average saw a rise in incomes of 3.8%.
This increase in earnings, coupled with a nationwide decline in poverty, is evidence that on the whole the economic forecast is growing sunnier.
At the same time, we still have a long way to go. One in five children in Montana under the age of 18 were living in poverty last year. For children under age 5, one in four live below the poverty line. There are still too many families working hard for low pay and struggling to afford the basics, like housing, child care, and transportation.
How can Montana keep moving in the right direction?
One of the best ways we can strengthen working families is through the Earned Income Tax Credit (EITC). The federal EITC, a credit which provides additional income support for low-income working families, is one of the most effective anti-poverty measures ever implemented. The federal EITC, coupled with the Child Tax Credit (CTC) has been able to lift 24,000 Montanans (including thousands of children) out of poverty each year from 2011 to 2013.
Enacting a state EITC would give a much-need boost to working families and our local economies. With a state benefit set at 10% of the federal EITC, families could receive a maximum of $627, which would then be spent in local businesses supporting our economy and helping families purchase necessary goods like children’s school supplies.
Now that we are beginning to benefit from a strengthening economy, we should make sure that all Montanans are able to see an improvement in their lives. Enacting a state EITC is an efficient and effective way to keep moving in the right direction.
We learned this week that the Department of Revenue settled a property tax dispute with NorthWestern Energy, which will lower the overall market value of its centrally-assessed property from what DOR had originally certified as the value for 2016. We thought this would be a great opportunity to do a quick refresher course on property taxes, how they are assessed, and what this will mean for you and your community.
First, let’s go through some basic information on property taxes.
NorthWestern Energy is the state’s single largest property taxpayer, and the company is a centrally assessed taxpayer. 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.
How are property taxes calculated?
The Montana Department of Revenue is in charge of appraising – or valuing – property in the state every other year (for centrally assessed, it happens every year). This amount is called the market value. The Department determines the market value for the entire company and then assigns pieces of that value to counties and local jurisdictions based on the percent of property (or mileage) in that jurisdiction. The Legislature has assigned a tax rate to each type (or class) of property, including types of centrally assessed property. The market value is multiplied by the tax rate to determine the taxable value. On a local level, individual local taxing jurisdictions (this would be city and county governments, local school districts, and some smaller special districts, like fire districts) determine the amount of revenue it can levy (with strict limitations) to help fund schools and local government operations, called mill levies. A mill levy is a tax rate per thousands dollars of taxable value of property. Once the taxable value is determined, each local taxing jurisdiction applies the mill levies to the property’s taxable value to determine the property taxes owed.
How each local government and school determines the number of mills it can levy is based on complicated formulas, which are primarily tied to the local government’s or school district’s current budget, the overall tax base in the jurisdiction, and some slight modifications based on inflation and growth. In this case, the Department of Revenue had already certified the total tax base for each local taxing jurisdiction, so counties and local governments had already set their mills.
So what happened with NorthWestern property value?
Toward the end of 2014, Northwestern Energy purchased eleven hydro facilities from PPL Montana for about $870 million. NorthWestern has also reported increased acquisition of natural gas assets and a series of upgrades to its system. All of these changes impact the value of the company. The Department of Revenue took into account this additional value for purposes of 2016 property taxes, and certified taxable values for counties reflecting this increased value.
NorthWestern Energy informally disputed the Department of Revenue’s new market value, and from statements made in the press, it sounded like this could have been headed toward a formal protest, which bottles up a good portion of the tax owed and puts schools and local communities in a very tough spot. The final settlement on this year’s tax bill reduces NorthWestern Energy’s total tax bill by about 8 percent.
What does this mean for local communities?
For those taxing jurisdictions that include NorthWestern Energy property, they will see their overall tax base go down and will generate less property tax revenue (at the current level of mills). Of the 1,300 taxing jurisdictions in Montana, about 900 will be impacted by this settlement. The below chart shows the difference in taxes assessed, for all taxing jurisdictions located in that county. (This is not what the county government gets, but for sake of simplifying the 1,300 taxing jurisdictions, we’ve lumped them together by county to give a sense of where impact is greatest.) For most, the percent change in total taxes assessed is less than one percent. However, for a community or taxing jurisdiction with a large NorthWestern Energy presence, the impact is greater – between two and five percent change.
Because this settlement will have such an impact on some communities, the Department will allow local taxing jurisdictions to request a new certification of the tax base. In that case, it can then go back and change its mills to make up the loss in revenue. This would mean a potential increase in property taxes for all property taxpayers in the jurisdiction.
What are we hearing so far from communities?
Some local jurisdictions have said they will absorb the loss in revenue – through the use of reserves or possibly cutting back services. But for some communities, this loss of tax base will have real implications for budgets and how it provides services in the community, and it may need to request recertification to recoup much-needed revenue.
|Taxing Jurisdictions, by County||Total Taxes Assessed OLD||Total Taxes Assessed NEW||Total Loss in Taxes Assessed|
|Lewis & Clark||$12,317,248.25||$11,289,248.17||$1,028,000.07|
A few weeks ago, the Montana Budget and Policy Center released its new report – The Montana We Could Be. The report details how the income tax cuts passed in 2003, which largely benefited wealthiest households – has resulted in millions in lost revenue. This revenue could have gone to targeted investments into our communities. One area of focus is the ongoing needs in infrastructure – maintaining roads and bridges, water systems, and quality schools. As shown in the chart, the needs far exceed current levels of funding. Last session, the legislature failed to pass a bipartisan infrastructure package, which would have provided $150 million for new infrastructure projects.
As another school year is about to start, several long-time teachers – residing in three Montana communities – highlighted the need for investments in education, including school facilities. Teachers across Montana do an incredible job each day ensuring that our children are given the opportunity to succeed in this state. But too often, educators are faced with teaching our next generations in facilities that fail to provide the 21st Century learning environment that our children need to succeed in today’s world. Even worse – basic maintenance issues continue to stack up – leaking roofs, impaired heating systems, and electrical problems. More than two-thirds of Montana’s schools were constructed before 1970, and a report from 2008 shows overall deferred maintenance needs exceeds $900 million.
We can and should do better. As our report and yesterday’s op-ed highlights, Montana is faced with a tight budget, in part, due to tax cuts put in place over a decade ago. These tax cuts – billed as a way to grow the economy – resulted in deep tax cuts for the wealthiest households, while the vast majority of Montana families saw little or no benefit. Over the past decade, these tax cuts have cost the state nearly $1 billion in lost revenue – revenue that could have been invested in our children and our communities.
Meanwhile, local cities and towns – and local property taxpayers – are left holding the bag to ensure our neighborhoods and schools can thrive. While state K-12 funding has increased over the past two decades, property tax revenue used to pay for education has increased at a much greater rate.
Over the years, Montana families and our communities have stepped up to ensure our children can succeed. We know our entire state moves forward when we have a quality educational system. However, we also must ensure everyone is paying their fair share and carrying their weight. It is time to reform our tax system to ensure the wealthy are paying their fair share, so that we can invest in a brighter future for Montana.