Kids don’t usually get too excited about things like tax credits. But they do appreciate things like being healthy, doing well in school, and having working parents. A state Earned Income Tax Credit (EITC) could help families provide their children with each of these things, and support our local communities as well.
Today we are going to talk about how children benefit from the EITC. If you’re not sure what that is, check out yesterday’s blog post first to get caught up.
While some very low-income families without children receive the EITC, most of the credits go to families with children. In Montana, 80,000 low- and moderate-income households benefit from the federal EITC. House Bill 391 would establish a state EITC, and help improve the lives of families and children all over the state.
The EITC essentially raises the income of working families by providing them with a tax credit. This bump in income has significant benefits for children. Nationwide, the federal ETIC has been the single most effective way to reduce poverty. In 2013, it lifted 6.2 million people, including 3.1 million children, out of poverty.
Although most families only receive the credit for a year or two, the benefits for children last much longer. Here are few examples of the long-lasting benefits the EITC can have on children:
- Better health at birth. Studies have shown that receiving the EITC can mean fewer babies born premature, or with low birthweight. Mothers were also more likely to receive prenatal care, and had better health indicators themselves.
- Better school performance. Children whose families receive larger EITCs are also more likely to do well on school tests, particularly in math.
- Brighter futures. Kids whose families receive larger ETICs are more likely to graduate from high school. They are also more likely to attend college.
- Higher earnings. A small boost in a family’s income when kids are little can mean big payoffs when they are older. For every $3,000 in extra income a year that a child in a low-income family received before age six, their working hours increase by 135 hours per year by the time they reach 25. Income increases by 17%.
Families spend their tax credits on basic needs, most of which directly benefit their children. About half of the credit tends to go to things like groceries or school supplies. Families spend the other half of things like paying off debt, or on home repairs, education, or savings. The EITC can help parents better provide for their children.
If Montana creates a state EITC, we can help build even healthier and stronger families across the state. House Bill 391 is an important opportunity to help our children succeed.
To learn more about how a state EITC would benefit Montana, read our report here.
This Wednesday, the Montana legislature will have a hearing on a bill that could help brighten the prospects of working Montana families. The bill is HB 391, a proposal to create a state Earned Income Tax Credit (EITC). So let’s first figure out what exactly the EITC is, and how it helps working Montanans.
The federal Earned Income Tax Credit was first created in 1975, as a bipartisan means of reducing poverty and creating jobs. President Ronald Reagan once said,
“The Earned Income Tax Credit is the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
The federal EITC gives families with incomes between about $39,500 and $53,000 (depending on marital status and number of kids) credit for the taxes they have paid. In 2015, the average EITC was $3,186 for a family with children, raising the family’s wages by about $265 a month. Only families that work qualify, and most families only use the credit for a year or two.
In HB 391, Montana’s proposed state EITC would be set to 10% of the federal credit.
A state EITC would:
- Benefit 80,000 families across Montana. Montana’s low-income families actually pay a higher portion of their income in taxes. A state EITC could help even out this disparity.
- Improve children’s lives. Children see plenty of benefits from the EITC – better health, better school performance, higher rates of college attendance, and even higher earnings for adults.
- Promote work. With an EITC, the more you work, the higher your refund. This format encourages families to work more hours, meaning better opportunities and higher pay as their careers continue.
- Strengthen communities. Families use their EITC to buy pay bills, buy groceries, and buy school supplies – pouring money back into their local businesses.
Twenty-six states plus the District of Columbia have already created state EITCs. This year, Montana legislators should make the same move to help support working families and their children.
To learn more about how a state EITC would benefit Montana, read our report here. Be sure to check back tomorrow, when we will talk more about how a state EITC would benefit our children.
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.
Today at 1 pm at the State Capitol, CSKT Tribal Chairman Dr. Vernon Finley will deliver this year’s State of the Tribal Nations Address to members of both chambers of the state legislature, as well as top state officials. This occasion provides us with a great reason to review the meaningful developments in the relationship between tribal nations and the state of Montana.*
1951 – Montana Legislature creates the Coordinator of Indian Affairs position in recognition of the need for American Indians to communicate with state government.
1972 – Montana Constitution is revised in its entirety and includes the addition of Article 10, Section 1(2), which states that “the state recognizes the distinct and unique cultural heritage of the American Indians and is committed in its educational goals to the preservation of their cultural integrity.”
1981 – Montana Legislature enacts the State-Tribal Cooperative Agreements Act, authorizing public agencies to enter into cooperative agreements with tribal governments.
1989 – Montana Legislature establishes the Committee on Indian Affairs, now called the State Tribal Relations Interim Committee to act as a liaison with tribal governments, encourage state-tribal and local-tribal cooperation, propose legislation, conduct interim studies and report its findings and make recommendations to the legislature.
1995 – State Tribal Relations Interim Committee publishes The Tribal Nations of Montana: A Handbook for Legislators to educate legislators about tribal culture, sovereignty, and government policies related to American Indians in Montana.
1995 – Montana Legislature passes House Bill 544, sponsored by Representative Carley Tuss and codified as MCA 20-25-428, to appropriate $1.4 million to go towards reimbursing tribal colleges for educational services provided to resident non-Indian students. This would later become known as the Tribal College Assistance Program.
1997 – Montana Legislature passes Senate Bill 84, sponsored by Senator Greg Jergeson, to make permanent the Tribal College Assistance Program, though the funding distribution remains contingent upon a line item appropriation.
1999 – Montana Legislature passes the Native American Economic Development Act, launching the State Tribal Economic Development (STED) Commission. The commission is comprised of eleven representatives from the eight tribal governments in Montana is responsible for assisting, promoting, developing, and proposing recommendations for accelerating on-reservation economic development.
2003 – Montana Legislature passes House Bill 608, sponsored by Representative Jonathan Windy Boy and codified as MCA 2-15-142, 143. HB 608 creates mechanisms for holding the state accountable to Indian tribes and formulates the principles that should guide the state-tribal governmental relationship.
2005 – Governor Brian Schweitzer creates – via his first executive order – the Governor’s American Indian Nations Council (GAIN) to ensure that all activities conducted between tribal nations and the state are conducted in a government-to-government manner and that state agency activities with tribes include tribal consultation.
2005 – Governor Brian Schweitzer’s administration creates the GAIN database to track the extent of the state’s involvement with tribal governments.
2005 – Governor Brian Schweitzer convenes the first-ever state-sponsored meeting of tribal leaders, regional directors of the Bureau of Indian Affairs and Indian Health Service, and key members of his staff and state agencies to begin creating innovative solutions to some of the issues identified as priorities by tribal nations in Montana.
2005 – Montana Legislature approves Governor Brian Schweitzer’s executive budget request for $3.2 million for fulfilling the state constitutional mandate articulated in Article 10, Section 1(2), today known as Indian Education for All.
2005 – Montana Legislature approves Governor Brian Schweitzer’s executive budget request of $1 million for Indian Country economic development to support tribal nations in taking advantage of existing and potential economic opportunities on their reservations. The program has since been expanded and is now called the Indian Country Economic Development (ICED) program and remains contingent upon a line item appropriation.
2006 – Governor Brian Schweitzer grants official state recognition to the Little Shell Tribe, a declaration that honored the 2003 landmark Montana Supreme Court ruling in Koke v. Little Shell Tribe.
2007 – Montana Legislature makes permanent the State Tribal Economic Development (STED) Commission.
2009 – Montana Legislature passes House Bill 158, sponsored by Representative Shannon Augare, to allow tribal governments the ability to access all economic development grants and loans available under the Big Sky Economic Development Trust Fund, originally created in 2005.
2009 – Montana Legislature passes House Bill 193, sponsored by Representative Shannon Augare and codified as MCA 2-15-102, to change the title of the Coordinator of Indian Affairs to Director of Indian Affairs, making the position commensurate with other positions in the Governor’s cabinet.
2010 – Governor Brian Schweitzer hosts the first Tribal Leaders Summit, now held annually, to encourage state-tribal dialogue and to strengthen the government-to-government relationship between the state and tribes.
2013 – Montana Legislature passes Senate Bill 342, sponsored by Senator Jonathan Windy Boy and codified as MCA 20-9-537, to provide $2 million for the Montana Indian Language Preservation Pilot Program, to preserve and perpetuate tribal languages and creating a historic partnership between the state, tribal educators, organizations and governments.
2014 – Governor Steve Bullock launches his Main Street Montana in Indian Country initiative to work with tribal governments to increase educational and workforce development opportunities, develop reservation infrastructure, increase access to capital, and promote economic growth on reservations.
2015 – Montana Legislature passes House Bill 559, sponsored by Representative George Kipp, III, which appropriates an additional $1.5 million to continue the accomplishments of the Montana Indian Language Program into the 2017 biennium.
2015 – Montana Legislature passes Senate Bill 307, sponsored by Senator Sharon Stewart-Peregoy, to require the state to recognize tribal business entities organized under the laws of a federally recognized tribe in Montana.
2016 – Governor Steve Bullock creates the Office of American Indian Health to work in close collaboration with tribes to address health disparities among the American Indian population in Montana and bring about health equity.
The relationship between the state and the eight tribal governments in Montana continues to progress. Although this relationship can be contentious at times, we are at the forefront in terms of tribes and states working together to advance their common goals of meeting the basic needs of their shared citizens and strengthening their shared economies. Tune in today for Chairman Finley’s address at 1:00pm in the House chambers or listen to it live here.
*Note: There are three criteria for inclusion on this timeline. The relationship development must: (1) impact all the tribes in Montana; (2) be new (versus a continuation of support for a previous development); and (3) concern tribes and not individual tribal members.
This week, MBPC released a new report providing an overview of early actions so far on the state budget, and the damaging cuts that have already been proposed. In the first couple weeks of the session, Legislators took early steps to make significant cuts to the state budget, representing more than $449 million in total funds. A good portion of these cuts will be in federal matching funds in critical programs for the state.
Montana’s budget and economy rely heavily on federal funding that assists us in our collective efforts to pave our roads, build and maintain our bridges, prepare our national guard, train our workforce, and help keep vulnerable Montanans safe and healthy in their homes and communities. The bulk of the federal dollars that get appropriated through the state budget fund infrastructure, programs, and services in the Department of Transportation (DOT) and the Department of Public Health and Human Services (DPHHS). These funds are usually under the condition that the state meets certain program requirements and matches the federal funding with a state share. Overall, the state budget is supported by over $4 billion of federal funding, roughly 42% of the entire state budget.
As we’ve written previously, this year state legislators and the governor are facing a short-term but significant drop in state general fund revenue. To deal with this decline, the governor’s proposed budget included a combination of difficult cuts to state services and targeted revenue increases that bring more fairness to our tax system and ensure adequate levels of revenue. Unfortunately, some legislative leaders have indicated a dangerous unwillingness to accept this balanced approach and have instead started the budget process by imposing additional deep, unnecessary, and harmful cuts.
Relying entirely on cuts, preliminary actions by the legislative joint subcommittees have slashed over $190 million in state spending ($114 million general fund; $77 million state special revenue) on everything from services for seniors and people with disabilities to our tribal, two-year, and four-year colleges and universities (likely resulting in doubled-digit tuition increases).
What do these state cuts have to do with federal funding flowing into the state and our communities?
Well, in key portions of the budget, like DPHHS and DOT, a lack of state funding means even more dramatic cuts in federal funding – much deeper than many people realize. So in making their unnecessarily severe cuts to state spending of over $190 million, legislators and Montana will lose out on an additional $254 million in matching federal funds. In total, this hit to the state budget is nearly half a billion dollars.
We know that this is more than just dollars to the state. If not restored, these unnecessary cuts will impact people and communities in every corner of Montana.
For example, DPHHS partners with community providers to run a Medicaid program called Community First Choice, for seniors and people with disabilities who need assistance with daily living in order to stay in their homes and avoid institutional settings like nursing homes. Through Community First Choice, Montanans can get help with activities such as eating, bathing, taking medicine, and getting to medical appointments. When Montana provides these services to the seniors and people with disabilities who need them, the state only has to pay 29% of the cost. The federal government pays for the other 71%. It’s a good deal for seniors who get to stay in their homes and a good deal for taxpayers as people avoid costlier institutional care.
The division responsible for running Community First Choice and other programs and services for seniors and people with disabilities is facing over $17 million in state funding cuts that would be accompanied by almost $34 million in lost federal funds for a total loss of $51 million dollars. These cuts are irresponsible to seniors, the state budget, our communities, and our economy.
This is just one of many examples of essential state services being cut so severely in an attempt to balance the budget. You can read a summary of total cuts adopted by the Legislative Committee in starting motions here.
We know that some cuts will be inevitable. However, as the legislature continues to evaluate the budget, they must look at ways to responsibly raise revenue and minimize unnecessary losses of federal funding.
An Early Look at the 2019 Biennial Budget: Montana Needs a Balanced Approach to the State’s Revenue Challenges.
Montanans care deeply about the well being of their families and communities. They want a hopeful and prosperous future for their children and neighbors, safe communities, and a strong state economy that supports quality jobs and thriving businesses. As Montanans, we have come together at many pivotal moments in our state’s history to collectively build toward these goals. Together, we have considered not only what we can afford to accomplish today, but also the investments we must make
to protect our future.
During Montana’s 2017 legislative session, elected officials should be focused on wisely increasing and using the state’s resources to help build opportunities and a path to prosperity for all Montanans through the budget creation process. A recent, but short-term, decline in state revenue, caused primarily by declines in corporate income and oil and natural gas taxes and slower than anticipated growth in individual income taxes, has created significant challenges for the state’s elected officials.
The proposed executive budget creates a responsible blueprint for addressing these challenges through a balanced approach that includes a combination of difficult cuts and targeted revenue enhancers that bring more tax fairness to our system and ensure adequate levels of revenue. Unfortunately, key legislative leaders have indicated a dangerous unwillingness to accept this balanced approach and have instead started the budget process by imposing additional deep, unnecessary, and harmful cuts.
To shed light on the depth of these cuts and the programs and people they will impact, MBPC wrote a report – An Early Look at the 2019 Biennial Budget: Montana Needs a Balanced Approach to the State’s Revenue Challenges.
Supporting information can be found in two supporting documents.
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.
The start of the 2017 Montana legislative session is a great time to talk about two major incentives for state and tribal governments to work together to address mutual concerns—devolution and overlapping areas of governmental responsibility.
The term “devolution” stems from the so-called New Federalism reforms of the 1990’s and refers to the practice of devolving federal resources and administrative responsibility of federal programs to tribes, states, and local governments.
The intent of these policies was partly to give local governments greater freedom in determining how best to meet the needs of their respective citizens. However, they also allowed for the diminishment of federal administrative and fiscal responsibility for those programs; or in other words, they were tied to decreases in federal aid. Because of this—and the fact that an array of state and tribal governmental activities, programs, and responsibilities overlap—there is a great incentive for tribes and states to work collaboratively to maximize the impact of their available resources.
For tribes, devolution was largely evidenced in the passage of the Tribal Self-Governance Act of 1996, giving tribes the ability to compact management of one or more federal programs serving their reservations and the freedom to redesign the programs and reallocate funds for these efforts.
For states, devolution was seen primarily in the area of welfare reform. In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act transferred financial resources and authority for federal income assistance programs to states. This transfer generally took the form of federal block grants to states for providing public services.
Some of these funds are passed through to tribal and local governments, who are eligible to administer a small number of programs.
According to a 2015 Center for Budget and Policy Priorities analysis of the 13 major housing, health, and social services block grant programs, funding for all but one has shrunk in inflation-adjusted terms since their inception—and in some cases, dramatically. Since 2000, the combined funding for the 13 block grants fell by 27 percent, or $14 billion in 2015 dollars.
In addition, block grant funding often cannot adjust to changes in need. Programs like SNAP (formally food stamps) grow by need. In block grants, the funding levels are set, so if a recession occurs and more people need help, the program must make the tough choice between serving fewer people and reducing the services per person to serve more people.
For both tribes and states, funding shortfalls complicate the administrative freedom that results from devolution. These decreases in overall program aid have put pressure on both tribal and state governments to either find ways to supplement program budgets or cut services for those programs—or sometimes both.
Thus, tribes and states have a vested interest in collaborating to maximize their resources when working to achieving some very significant mutual goals, including addressing the basic needs of their shared citizens and strengthening their shared economies.