This tax bill is a health care bill too.

We anticipate that the House and Senate will vote on the final GOP tax plan early next week. While this proposal is first and foremost a give-away to the super wealthy and corporations, it’s important to remember that it is also a direct attack on the health care coverage of Montanans.

We briefly explained in an earlier post about why the Senate tax bill would hurt Montanans with health care needs. Today we are going to take a closer look at how this tax bill is a health care bill too:

If the Affordable Care Act’s individual mandate were repealed, 13 million more Americans would go uninsured. While the Congressional Budget Office (CBO) notes that the magnitude of the coverage effects is uncertain, it concludes that there’s no doubt that “the number of uninsured people would be millions higher.”

In Montana, 146,717 people are enrolled in Medicaid as of September 2017, and 86,000 people are enrolled in Montana’s Medicaid expansion as of November 2017.

And, thanks to the Affordable Care Act, Medicaid and the Children’s Health Insurance Program (CHIP), 92 percent of Montana’s children now have health insurance coverage.

With over 232,000 Montanans insured through Medicaid and Medicaid Expansion, cuts to Medicaid would be devastating for our state. Montana is already grappling with an opioid epidemic, as well as major funding cuts to support rural health care needs and Montanans with disabilities. As recent media has reported, Medicaid and Medicaid Expansion has been a critical lifeline for Montanans.

Without the ACA individual mandate, individual market premiums would also increase 10 percent. Fewer healthy people would sign up for individual market coverage with no mandate, which would increase average costs and therefore premiums in the individual market as less healthy and young people enroll and more people with expensive medical needs tilt the cost of health care needs.

The Congressional Budget Office (CBO) estimates that repealing the mandate would permanently raise premiums by 10 percent, and some major insurers have projected larger effects. As Senator Collins has noted, these premium increases would likely erase — or more than erase — the Senate bill’s tax cuts for millions of people who buy coverage in the individual market. Unaffordable premiums should not be a barrier to folks who need coverage.

The individual mandate is also critical to keeping the individual market stable. As the American Academy of Actuaries commented in its recent letter to Senate leaders about repealing the mandate, “increased uncertainty and instability regarding future enrollment, premium rates, and risk pool profiles if coverage incentives are eliminated would increase the risk of insurers incurring losses. Insurers would likely reconsider their future participation in the market. This could lead to severe market disruption and loss of coverage among individual market enrollees”

And last, but not least, if repealing the individual mandate is included in the final federal tax plan, it would also result in the loss of $5.5 million in general fund revenue per year for Montana. Since it is predicted less Montanans would enroll, the state would lose revenue from no longer collecting the health insurance premium tax from enrollees.

Affordable health care coverage for Montanans is a value that we all share. Our Montana congressional delegation should work to advance tax policies that strengthen the state of Montana and invest in our working families. Equally, our congressional delegation should support health care legislation that strengthens the Affordable Care Act—not provisions that work to cut it down.

Get Ready for the One-Two Punch: Anticipated Cuts to SNAP, Medicaid, and Possibly More

As the U.S. Senate & House conferees are crafting the final GOP tax plan behind closed doors in conference committee, we already have a strong sense of who wins and who loses under this bill. Any changes that happen before the chambers vote during the week of December 18th will not repair the devastating provisions of either the House-passed or Senate-passed bills.

As we anticipate the passage of this final tax legislation, we want to turn toward the details of the future implications of a tax bill that adds $1.5 trillion to the national deficit over ten years.

Get ready for the one-two punch: anticipated cuts to SNAP, Medicaid, and possibly more.

As we expected during the federal budget resolution process in the fall, the tax bill that congressional Republicans are finalizing is just step one of a likely two-step tax and budget agenda. The plan looks like:

  1. Cut taxes now that are heavily skewed toward wealthy households and profitable corporations.
  2. Then decry the enlarged deficits that those tax cuts fuel — and insist that they require cuts to programs for mainly low- and middle-income families.

Republican leaders have repeatedly said in recent weeks that after enacting a tax bill, they will turn to budget cuts — particularly “welfare reform,” long a code for cuts to SNAP (formerly known as food stamps), Medicaid, Medicare, among others that help families of limited means afford food, housing, health care, and other basic needs.

Approximately 1 in 8 Montanans struggle with hunger, including 45,000 children living in food insecure homes. Cuts to SNAP would hurt families with kids, seniors, and people with disabilities. As for health coverage, about 232,000 Montanans are insured through Medicaid and Medicaid Expansion as of September 2017. Cuts to Medicaid would be devastating for our state, which is already grappling with an opioid epidemic, as well as major funding cuts to support rural health care needs and Montanans with disabilities.

The budget resolution that Congress approved in October, which created the process and set the parameters for the current tax bill, also calls for $5.8 trillion in budget cuts over the coming decade, including deep cuts in Medicaid, Medicare, and other health care programs; basic assistance including SNAP; and non-defense discretionary funding, the part of the budget that funds education and training, transportation and other infrastructure, medical research, child and elder care, and other important priorities.

GOP leaders appear already poised to seek large budget cuts next year before the final tax legislation makes it to the President’s desk.

Ultimately, the true winners and losers of this federal tax proposal and the subsequent plan to cut services that hundreds of thousands of Montanans rely on haven’t changed with small tweaks to the proposals. Low- and middle-income folks, working families with children, and Montanans with health care needs are all set up to fail if the GOP tax proposal becomes law.

Federal Tax & the State Budget: More Revenue Problems to Come?

As Congress reconciles the differences between the House- and Senate-passed versions of their tax bills this week, here is our next installment of combing through the details of this terrible tax bill.

Both chambers’ tax plans provide large tax cuts to the wealthy and corporations, raise taxes for many low- and moderate-income people, boost the number of uninsured Americans by millions, and expand deficits.

But did you know that the federal tax proposal would also shoot a hole through our Montana state budget?

For today: Federal Tax & the State Budget – More Revenue Problems & Cuts to Come?

Based on the Senate tax bill, the Montana Department of Revenue estimated that the federal tax changes could impact the State General Fund to a tune of $122.5 million per year in 2018 and 2019. The estimated revenue changes as a result of corporate and individual income tax provisions are shocking to say the least.

That $122.5 million per year figure breaks down along four different tax categories:

  • The Senate provisions for individual and pass-through income tax result in $80 million lost in general fund per year.
  • The Senate provisions for corporate income tax result in $13 million lost in general fund per year.
  • The repeal of the ACA’s individual mandate in the Senate bill will result in the loss of $5.5 million in general fund revenue per year. Since it is predicted less Montanans would enroll, the state would lose revenue from no longer collecting the health insurance premium tax from enrollees.
  • The Senate bill could also cause Montana to lose $24.0 million in federal mineral royalty payments each year. This revenue loss would impact Montana counties that depend heavily on coal and oil production.

Just last month the state legislature held a special session to address the budget crisis in our state and find answers to solve the $227 million revenue shortfall on top of $218 million in present law reductions already taken during the regular legislative session and through triggered cuts in SB 261.

Montana cannot weather another hit like this.

Senator Daines and Representative Gianforte should work to advance tax policies that strengthen the state of Montana and invest in our working families. A vote for the federal tax bill would be a vote to send Montana spiraling back into a budget crisis.

 

Pass-Through Provisions Are Not for Main Street

By now you have heard that the tax bill Congressional Republicans are rushing to get to the President’s desk by Christmas will be a costly new giveaway to the very wealthy and major corporations at the expense of working families in Montana.

Last week we outlined who wins and who loses under the U.S. Senate tax plan. Now we want to dive deeper on the details through a blog series over the next several days.

First up: Pass-Through Provisions Are Not for Montana’s Main Street

Racing to pass a tax bill last week, U.S. Senate Republicans made this bad bill even worse by rushing to include a few provisions that skewed the bill even more toward the rich.

One of the last minute edits sweetened the pot for owners of unincorporated businesses who declare their profits as “pass through” income on their personal tax returns — income from businesses such as partnerships, S corporations, and sole proprietorships that owners claim on their individual tax returns and is now taxed at the same rates as wages and salaries.

The version that passed the Senate Finance Committee would have let business owners deduct 17.4 percent of their pass-through income from their taxable income, meaning that it would be tax free (subject to certain restrictions). That deduction is heavily skewed to the most profitable businesses and wealthiest business owners, who receive a greater share of their income from pass-throughs and enjoy a larger tax break per dollar of deductions since they are in higher tax brackets.

To secure the vote of Senator Steve Daines, GOP leadership agreed to raise the deduction percentage by nearly a third, to 23 percent.

Although Senators Daines claimed that he was trying to help owners of small businesses, the fact is that nationally the richest one per cent of households receives more than half of all pass-through income the economy generates.

Because Montana allows all deductions permitted by federal law, the 23 percent deduction to federal income taxes in the passed Senate bill would be taken out again at the state level. According to the Montana Department of Revenue, this pass-through deduction combined with other changes to income tax, would result in a state revenue loss to $80 million.

While sold as a benefit to Main Street, this revised pass-through provision is a sham. As we have explained before, it does not help Montana’s small business owners. It is just one more give-away to the super wealthy in Montana, it increases pressure on Montana’s already strugging budget, and it leaves the average working family high and dry.

Why the Senate Tax Bill Hurts Montana Small Businesses & Main Street – Even with a change to benefit pass-through entities

On Monday Senate Daines announced that he would vote “No” on the Senate tax proposal, citing that the current bill does more for large corporations at the expense of small businesses. While we appreciate Senator Daines’ concern that this bill doesn’t work for Montana, the issues and threats we face in this tax bill are far greater than this narrow issue.

Daines’ concern relates to the provisions for pass-through entities. Pass-through entities include partnerships, sole proprietorships, S-corporations, and other companies whose earnings pass straight through to owners’ individual returns, rather than being taxed at the corporate level.

The current Senate bill includes a new deduction for taxpayers who have income from a pass-through entity. The Senate bill provides a 17.4 percent deduction on income earned from pass-through businesses, effectively bringing the taxpayers top tax rate down to about 32 percent. Senator Daines is calling to increase this deduction to 20 percent on income, which would further lower their rate.

However, small tweaks like this one do not fix this bill. There are several key provisions of the Senate tax plan that are far more harmful to middle-class Montanans and small businesses, which Senator Daines has not yet addressed.

For example, decreasing the corporate tax rate from 35 percent to 20 percent largely benefits large corporations that are experiencing record profits, while tax revenue from the same group has been plummeting. The decrease in the corporate tax rates further tilts the scales in favor of large corporations, giving them an unfair edge over Main Street small businesses. 
At the end of the day, the Senate bill’s corporate tax cuts are permanent, while pass-through entities would see a tax hike by 2027 because the deduction is a temporary provision set to expire after 2025.

Repealing the State and Local Tax (SALT) deduction means increased taxes for small business owners and their customers, and increased pressure on state budgets.

Finally, repealing the individual mandate requirement under the Affordable Care Act would cause 13 million Americans to become uninsured. The increase in uncompensated care costs could force some providers to close their doors or cut back spending in ways that undermine the quality of care. Providers might also raise prices, shifting costs to people with private insurance coverage (including employer coverage). Or, states or the federal government might be forced to step in to cover some of these uncompensated care costs, shifting costs to taxpayers.

Regardless of what changes are made to the Senate tax bill before a vote later this week, this proposal is still bad for Montana, and it does nothing to help working families. Main Street small businesses don’t benefit from tax cuts to millionaires and billionaires. They deserve Congress to work in a bipartisan manner to find ways to really help small businesses.

US Senate Tax Plan in Montana: Winners and Losers

In mid-November, the House passed a tax plan that would add $1.5 trillion to the federal deficit and increase taxes on working and middle-class people to pay for permanent tax cuts for large corporations and the super wealthy. The proposal also sets up deep cuts to Medicaid, Medicare, education, and SNAP that would add to the pain families feel as a result of this bill.

The Senate bill has the same basic flaws as the House bill, but this time the tax legislation also includes a direct attack on the Affordable Care Act, resulting in millions of Americans losing coverage. As we anticipate the Senate vote this week, let’s take a closer look at who are the real winners and losers in the Senate tax plan:

WINNERS

The Super Wealthy: Despite all of the talk about helping the middle class, wealthy individuals and their heirs win big from the Senate tax plan. The top tax rate for millionaires has been shaved down to 38.5 percent from 39.6 percent, while the exemption from the estate tax—which is a an inheritance tax on multi-million dollar estates—doubles to $11 million for individuals and $22 million for couples. The Senate bill also eliminates the alternative minimum tax (AMT), a levy aimed at ensuring that higher-earning people pay at least some tax.

By 2025 (when most of the Senate bill’s provisions would be in place), high-income households would get the largest tax cuts as a share of after-tax income, on average. Meanwhile households with incomes below $30,000 would, on average, face a tax increase.

Multi-National Corporations: The Senate bill slashes the corporate tax rate from 35 percent to 20 percent, going into effect in 2019. U.S. oil companies with foreign operations would pay reduced taxes under the Senate bill on their income from sales of oil and natural gas abroad. Beer, wine and liquor producers would also reap tax reductions under the Senate measure. Like the House bill, the Senate bill creates a lower corporate tax rate for multinationals’ foreign profits. That’s a big incentive for companies to shift profits and investments offshore to get the lower rate, and it advantages large multinationals compared to small, domestic firms.

The Senate bill makes all these tax cuts for corporations and multinationals permanent—paying for that by repealing the individual mandate and making millions more uninsured, even while allowing provisions that are intended to benefit middle-income families expire at the end of 2025.

Senate tax plan

LOSERS

Montanans with Health Care Needs: The Affordable Care Act’s individual mandate would be repealed, which would cause 13 million more Americans to be uninsured and raise individual market premiums by 10 percent. The individual mandate is critical to keeping individual market coverage affordable and keeping the individual market stable. The $338 billion in savings from repealing the individual mandate are being used to pay for making part of the Senate bill’s corporate tax rate cut permanent, which overwhelmingly benefits high-income households: the top 0.1 percent of households would get an average tax cut of about $100,000 annually.

Working Folks: Many families making less than $30,000 a year would face tax increases starting in 2021 under the Senate bill, according to Congress’ nonpartisan Joint Committee on Taxation. By 2027, when many of its provisions would have expired, those at the top would still get large tax cuts, but every income group below $75,000 would face tax increases, on average.

Working Families with Children: The Senate plan’s signature “middle class” tax cut, its Child Tax Credit (CTC) increase, provides almost no benefit ($75 or less) to 10 million children in low-income working families, and provides less than the full $1,000 increase in the credit to millions more. At the same time, it newly extends the full $2,000 per child credit to couples with incomes between $110,000 and $500,000. Even this meager increase would be temporary, as the Senate tax plan ends the entire CTC increase after 2025. Low-income working adults without children and non-custodial parents are also largely excluded from the plan’s tax cuts, so millions would continue to be taxed into or deeper into poverty.

Charities: Charities that support low-income families and supplement government services are nervous about the impact of doubling the standard deduction. The National Council of Nonprofits warns that charitable deductions are likely to go down under this bill. While the GOP enables the wealthy to continue deducting their charitable giving, many middle- and upper-middle-class families would no longer get that tax break, because they probably would stop itemizing their deductions. At the moment about 30 percent of Americans itemize, but under the GOP bill, the standard deduction roughly doubles from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples, meaning fewer people would probably itemize.

All of us in Montana: About half of Montana’s budget comes from federal funding. If these cuts become law, state policymakers will have to find ways to pay for health care, food aid, grants for college, and more. Thanks to low revenue due to our own trickle-down policies, it is highly unlikely Montana will make up the difference. This tax proposal on top of our current budget crisis in the state will be devastating to our economy, our communities, and our families that are already struggling.

The House Republican Tax Plan: Lion’s Share of Tax Cut Given to Richest 1 Percent of Montana Households, Grows Over Time

Today the US House Ways and Means Committee will begin its work on the House Republican tax cut bill.

House leadership continues to tout this tax proposal as a plan to boost the middle class. Yet a closer look at the bill’s details reveals that it provides an increasing share of tax cuts for the nation’s – and Montana’s – richest households while also increasing the federal deficit by $1.5 trillion over the next decade.

The share of tax cuts to the wealthiest taxpayers in Montana will grow over time due to phase-ins of tax cuts that mostly benefit the rich. The plan also includes the eventual elimination or erosion of tax credits and deductions that benefit low- and middle-income taxpayers.

For example, after five years, the bill eliminates a $300 non-child dependent credit that benefits low- and middle-income families while fully repealing the estate tax that impacts less than 1% of very large estates.

The 10-year outlook for the plan reveals that by 2027, the share of tax cuts given to the wealthiest 1% of households in Montana would grow from 34 percent in 2018 to 49 percent by 2027, for an average yearly tax cut of $50,890.

Middle-income taxpayers’ average tax cut would erode from $600 from $200. In fact, by 2027, one in six Montanans with incomes between $36,000 and $57,000 would actually face a tax hike.

Average Tax Cuts to Top 1% of Montana Taxpayers Dwarf Those Going to All Other Income Groups

Tax Cuts for the Wealthiest Could Result in Deep Cuts to Critical Services for Montanans

Equally problematic to who is benefiting, this tax plan will also result in a massive increase to the federal deficit, that will likely put pressure on federal spending cuts down the line. This budget pressure would then hit our state budget when federal programs get slashed and costs get shifted to the state and local governments. In our state, we know from experience that tax cuts will lead to larger deficits — they will not pay for themselves over the next decade.

Already-struggling families, seniors, and people with disabilities would lose more from cuts to food assistance, health care, housing assistance, and workforce development and educational opportunities than they would gain from the tax cuts outlined in this House bill.

Amidst our current budget crisis, Montana cannot afford additional budget pressure as the result of federal cuts to programs that support low- and middle-income families. Federal funds are the largest funding source for Montana at $4.5 billion or 44.7 percent of the 2019 biennium budget. Our state cannot adequately serve the people of Montana if we see federal support for children, families, and seniors begin to erode as a result of this tax plan skewed heavily to the richest taxpayers.

Our Montana Congressional Delegation should not support any tax bill that is heavily weighted to help the wealthiest, does little to support working Montana families, and swells the budget deficit.

Trump’s Tax Plan: Not a Middle-Class Miracle for Montana

The tax framework announced last week by President Trump and Republican leaders in Congress outlines large tax cuts aimed at the wealthiest households in the country – while offering little benefit for working families who are often struggling to cover day to day living costs.

The GOP-Trump Tax Plan is a massive giveaway to the richest 1 percent of taxpayers and increases the national deficit by $1.5 trillion.

Who benefits?

This tax plan is being sold as a “middle-class miracle,” but according to the Institute on Taxation and Economic Policy, it is anything but.

In Montana, the wealthiest 1 percent of households (those with annual incomes of $535,000 or greater) would receive an average tax cut of $68,950 every year. Meanwhile, middle-income earners would see almost no benefit. Montanans who earn about $60,000 per year or less would see an average tax cut of about $190, with those at lower income levels receiving less.

Overall, the richest 1 percent (roughly 5,000 taxpayers) would receive over half (56 percent) of the tax cuts received in Montana. Such enormous tax cuts for the wealthiest would ultimately hurt many Montanans, because the resulting increase in deficits and debt would increase the pressure for cuts in investments across the country that produce long-term economic benefits. Congressional GOP leaders may use deep cuts to Medicaid and Medicare to pay for these tax cuts, gutting programs essential for Montana families and our state budget. It is important to note that approximately 42 percent of Montana’s state budget comes from federal funds.

Average Montana families and communities across the state ultimately stand to lose far more from federal cuts than we would gain from tax cuts outlined in the this new tax framework crafted to benefit the wealthy.

To learn more, see our news release on the tax plan here.

Trump Tax Plan - MT

For a more detailed breakdown of how the tax plan would affect Montana taxpayers, go tohttp://itep.org/trumptaxprelim/.

More state budget cuts could be on the horizon: How much more can our communities take?

The Montana Budget and Policy Center staff spent their weekend pouring over the 10 percent reduction plans submitted by each state agency to the governor’s office. These plans, totaling over 220 pages, provide a glimpse at how painful these cuts could be for services for Montana families and support for schools, local law enforcement, and counties.

It’s important to note that these proposed 10% reduction plans are coming on top of $218 million in cuts that happened during the legislative session and this summer.

As we’ve discussed in previous blogs, according to the governor’s budget office, the state now faces a $227 million shortfall. In order to restore the ending fund balance back to where it needs to be, the governor and legislature can make further cuts and/or find new revenue. While the governor has some authority to make cuts on his own, the law limits him to cutting no more than 10% in each agency program. In order to reach the $227 million, the governor would have to take the full 10% of cuts in nearly every program.

In other words, if the governor and legislature do not come together to find additional revenue, the governor may be forced to address the budget crisis entirely through cuts and would have to accept nearly everything contained in the agency reduction plans. In that scenario, the Department of Health and Human Services (DPHHS) would experience the largest cut. According to the department’s reduction plan, the general fund cuts total $105 million and would also result in the loss of $135 million in federal funds, for a total loss of $240 million.

Potential cuts to DPHHS include:

  • Eliminate health case management for foster children, provided by Missoula and Cascade County Health Departments and Riverstone Health (Billings).
  • Eliminate supplemental payment to foster parents caring for infants and toddlers to help defray costs for diapers.
  • Cut orientation and mobility skill instruction for 300 children with low vision or blindness.
  • Cut grants for child care providers that help improve quality care.
  • Cut over $2 million in funding for non-profit organizations in Billings, Missoula, and Helena that provide housing and support for teenage mothers.
  • Eliminate partnership with Children Advocacy Centers that provide multidisciplinary evaluation of children victims of violence. This work and cost would be shifted back to local law enforcement agencies.
  • Eliminate funding for mentoring of foster children through eight Big Brothers Big Sisters organizations across the state.
  • Cut funding to domestic violence shelters across the state.
  • Cut $400,000 provided to tribes to assist with foster care placement of tribal children currently in their care.
  • Cut an additional $48 million in targeted case management for individuals with disabilities and those experiencing mental health and substance use disorders (this is in addition to cuts made earlier this year).
  • Eliminate funding for services for developmentally disabled and at-risk children ages 0-36 months.
  • Eliminate Medicare prescription drug benefits for over 10,000 low-income seniors.
  • Cut $6.8 million in services for home and community-based services for seniors and people with disabilities who want to stay in their home or community, likely forcing more Montanans into nursing home care.
  • Cut $8.5 million in hospice services.
  • Cut $15.5 million in personal assistant services for seniors and people with disabilities living in their own home.
  • Eliminate health insurance coverage for direct care workers who are already struggling to make ends meet.
  • Cut $23 million in reimbursement rates for hospitals providing care to Medicaid patients, including cuts to payments for Montana’s rural critical access hospitals. These cuts could mean reduced access to services in rural Montana.
  • Eliminate Medicaid’s coverage for some dental services, which could impact over 44,000 Montanans and 585 dentists providing coverage to Medicaid patients.
  • Cut $1.6 million in chemical dependency treatment.
  • Reduce grants to counties for mental health crisis intervention.
  • Close 19 offices of public assistance in rural Montana, impacting many families’ ability to access assistance and services.
  • Leave significant number of staff positions vacant through biennium (between 8% and 18% of positions in each division will be left unfilled).
  • For some remaining Department staff, mandatory furloughs that will cut hours by 7% to 12.5%.

This list is just cuts to DPHHS. Make no mistake, every program in every agency is facing cuts, but there is time to do something about it. The governor and legislators must come together to find a balanced solution to this crisis. Otherwise Montana is set to take a total of $500 million in general fund cuts in this biennium.

While some cuts may be inevitable, common sense measures to increase the tobacco tax and close tax loopholes would mitigate deeper cuts that will hurt our communities. These proposals should be part of the conversation. There are solutions to ensure that our tax system is fair, raise critical revenue, and help Montana be the state we all love to live in.

Report Preview: Taxes in Indian Country

Few people understand the nuances of how taxes work in Indian Country. As a result, taxation authority in Indian Country has been one of the most litigated issues between tribes, states, and local governments. Furthermore, there is much misinformation and many missed opportunities for innovative and mutually beneficial inter-governmental collaborations that respect tribal sovereignty.

MBPC is pleased to bring you a series of Policy Basics reports that break down this complex issue. This blog provides an overview of Part 1 and the taxes that individual American Indians in Montana pay. You can get all the details by reading our full report, which will be released early next week. Tribal governments and the taxes they pay and assess will be the focus of Part 2, which will be released later this fall.

Taxes and Individual Tribal Members

According to the U.S. Constitution’s supremacy clause, the Constitution, federal laws, and treaties override conflicting state laws. Additionally, a variety of U.S. Supreme Court rulings have recognized the absolute power of Congress to regulate Indian affairs and property. Altogether, this means that in most instances state and local governments cannot tax tribal members, tribal governments, or their property. However, tribal members living or working off their own reservation are subject to state and local tax laws.

In generally, individual tribal members are subject to federal income taxes. American Indians are also subject to state income taxes if they live or work off the reservation. Regardless of residence, American Indians pay into social security and Medicare, referred to as Federal Insurance Contributions Act, or FICA, taxes.

The U.S. Supreme Court has ruled that tribal members must pay state and local property taxes on their privately owned land held in fee simple status, even if their property is located on their reservation. Likewise, tribal members are also subject to all state motor vehicle taxes if they live off the reservation where they are enrolled. Regardless of residence, all tribal members in Montana must pay vehicle registration fees consisting of vehicle registration, vehicle disposal, weed control, county motor vehicle computer, and where applicable, the gross vehicle weight fees.

Tribal and state governments have each asserted their right to collect excise taxes on reservations, leading to years of costly litigation and tension. As a result, the state of Montana and the seven reservation tribal governments have negotiated a variety of revenue sharing agreements for excise taxes on alcohol, tobacco, and fuel (and in once instance oil and natural gas taxes). The goal of these agreements is to “prevent the possibility of dual taxation by governments while promoting state, local, and tribal economic development.”

Therefore, American Indians in Montana pay excise (or sales) taxes on alcohol, tobacco, and fuel that they purchase. The single exception is members of the Confederated Salish and Kootenai Tribes (CSKT), who do not pay the state tax on cigarettes they purchase on the Flathead Reservation. Because of this, the CSKT government does not receive a remittance share of this particular tax from the state; instead, they receive a limited number of tax-free cigarettes according to quotas set by Montana law. However, any sales above the quota are taxed.

Below is a visual snapshot of the taxes that individual American Indians in Montana pay. The yes-no answers paint a clear picture of what in reality is a complex statutory issue that is still being worked out between governments, Congress, and the courts.

AI taxes

 

 

 

 

 

 

 

 

It is important for policymakers and the broader public to understand how taxes work in Indian Country. This can reduce tensions and help maximize the potential for innovative and mutually beneficial inter-governmental collaborations that respect tribal sovereignty. Check out our blog early next week for Part 1 and stay tuned for more information on taxes and tribal governments, coming this fall in Part 2.