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.

 

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.

MBPC Statement in Response to the US House Tax Bill

Below is a statement by the Montana Budget and Policy Center in response to the United States House release of the Tax Cuts and Jobs Act:

“The House GOP’s tax plan would enact large tax cuts that are heavily skewed toward wealthy households and profitable corporations, while increasing the federal deficit over time,” said Heather O’Loughlin, co-director of the Montana Budget and Policy Center. “These tax cuts will result in even greater pressure on Congress to make cuts to programs that serve Montana seniors, people with disabilities, children, and working Montana families, all the while putting millions of federal dollars that are injected into Montana’s local economies at risk.” 

The House Republican tax plan released today is more of the same. Just like earlier proposals from the Administration and congressional Republicans, it would increase federal deficits, provide enormous tax cuts to high-income households and corporations, and hurt working and middle-income families.

The House tax plan would increase federal deficits by at least $1.5 trillion over the coming decade.

  • To put that number in context, $150 billion per year would roughly equal:
    • Doubling the Pell Grant program, which provides aid to low- and moderate-income college students; AND
    • Doubling cancer research at National Institute of Health (NIH); AND
    • Funding the full backlog of needed maintenance at our national parks; AND
    • Providing child care assistance to six million children; AND
    • Providing opioid addiction treatment to 300,000 people; AND
    • Training 3.5 million workers for in-demand jobs.

Tax cuts under the House plan would go overwhelmingly to high-income households.

  • Even though the House tax plan does not cut the top rate, it still delivers large tax cuts to the top 1 percent because of the corporate tax, pass-through, and estate tax cuts. And the new “millionaires bracket” is itself a tax cut of $24,000 to millionaires since they would no longer need to pay a 39.6 percent rate on income between $481,100 and $1 million.

Business tax changes in the plan would benefit high-income households and large multinational corporations, not small businesses or the middle class.

  • The House bill creates a lower corporate tax rate – 10 percent – for multinationals’ foreign profits, half its 20 percent rate on domestic profits. That’s a big incentive for companies to shift profits and would give international corporations a tax advantage against local small businesses.
  • The special lower rate for pass-through businesses overwhelmingly benefits the wealthy, such as hedge fund owners and real estate investors.

The plan offers no benefits to most low-income working families: instead, it hurts many.

  • While the plan increases the Child Tax Credit (CTC) increase, it leaves out more than 10 million children in low-income working families. Another roughly 6 million would receive only small benefits over time because their credit would grow with inflation.
  • 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 by federal income and payroll taxes.

Montana Families Rely on the Children’s Health Insurance Program: CHIP Facts

The Children’s Health Insurance Program (CHIP) provides vital coverage for thousands of Montana’s children. Federal funding, however, expired at the end of September 2017, jeopardizing financial stability for families and for the state.

CHIP birthsMontana cannot afford to provide coverage to CHIP families without continued federal funding, and Montana families cannot afford to lose their children’s health insurance. Our elected officials in Washington, DC must act immediately to continue this vital program.

To learn more about CHIP in Montana and what is at risk with its expiration, read our CHIP fact sheet – Montana Families Rely on the Children’s Health Insurance Program.

Policy Basics: Taxes in Indian Country. Part 1 – Individual Tribal Members

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. 

This is the first in a series of MBPC Policy Basics reports on taxes in Indian Country. This report provides a brief overview of the taxes that individual Indians in Montana pay. Part 2 will focus on tribal governments and the taxes they pay and assess. Part 2 reviews the state-tribal revenue sharing agreements made between the seven reservation governments and the Montana Departments of Revenue and Transportation

Here is the full report – Policy Basics: Taxes in Indian Country. Part 1 – Individual Tribal Members.

House and Senate GOP Health Bills Endanger Healthy Montana Kids Program

Healthy Montana Kids (HMK) provides vital health care coverage to more than one in three children in Montana. HMK, which includes both children’s Medicaid and the state’s Children’s Health Insurance Program (CHIP), not only improves the health of children, it also has lifelong impacts on recipients’ physical and financial well-being.

The Senate GOP proposal to repeal and replace the Affordable Care Act (ACA), called the Better Care Reconciliation Act (BCRA), would cut Medicaid by nearly $800 billion over ten years. By capping the amount of money states get from the federal government, this bill would shift significant costs to the states, forcing them to cut services and potentially the number of individuals covered. This report provides an overview of HMK and details the risk to HMK if the BCRA passes.

Some of the key facts and figures from the report include:

  • Over 120,000 (more than 1 in 3) children in Montana are covered through HMK.
  • Half of all births in Montana are covered through HMK.
  • Ninety-two percent of all Montana children have insurance, in large part due to HMK.
  • Roughly half of all Medicaid enrollees in Montana are children.
  • Schools in Montana receive $55 million in Medicaid funds – $36 million of which is federal.
  • Medicaid covers 100% of children in foster care, 71% of children living in poverty, and 50% of children with disabilities.
  • Under the original Senate bill, Montana would lose $5.3 billion in federal Medicaid funds, putting at risk Health Montana Kids and access to coverage for thousands of Montanans.

Here is the full report: House and Senate GOP Health Bills Endanger Healthy Montana Kids Program.

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A State Earned Income Tax Credit: Helping Montana’s Working Families and Economy

In Montana, thousands of families are working hard for low pay and often struggling to get by. One of the most promising opportunities to support working families and boost our economy is the enactment of a state Earned Income Tax Credit (EITC). The Great Recession and other economic trends made it harder for Montana’s families to live above the figure-1-_eitcpoverty line. In fact, nearly 50,000 Montanans are working, but still living in poverty. A sluggish economic recovery increased the struggles for low-income families. In addition, the Montana income tax system taxes families at an annual income far below the poverty line, pushing them further into poverty. The federal EITC program has been one of the most effective anti-poverty programs in history, and a state-level credit could provide the same benefits to Montana families.

Check out this quick report A State Earned Income Tax Credit: Helping Montana’s Working Families and Economy. It details the benefits of a state EITC and how many people could benefit in each Montana county.

Child Care in Montana: Access to Affordable and Quality Care

In today’s economy, more and more families struggle to get by on low wages and to provide resources that enable their children to succeed. Access to quality and affordable child care is one solution that enables parents to maintain stable employment and provides children with the skills they need to succeed in school and beyond.

While current child care costs are often out of reach for many low-and moderate-income families in Montana, some families can receive assistance through the state’s Best Beginnings Child Care Scholarship program. Unfortunately, because of application and eligibility requirements and inadequate federal and state funding, not all families who need child care assistance receive it. Program changes, like increasing eligibility limits to federally recommended levels, and significant state investments to increase reimbursement rates for child care providers would help ensure that more low-income families are able to receive assistance to pay for child care. It would also ensure that low-income families are not subject to additional costs beyond their means and enable them to access high-quality care options in their communities.

Child Care Report

New Medicaid Expansion Enrollment Numbers

Montana is six months into expanded access to health insurance through Medicaid Expansion. Individual Montanans and our communities are already seeing significant benefits to expanded coverage. Here is Montana’s Medicaid Expansion, by the numbers.

 

 

MBPC Announces New State-Tribal Policy Specialist

MBPC is thrilled to announce Heather Cahoon as our new State-Tribal Policy Analyst. Heather brings a wealth of experience in policy research, and we know she will be an incredible addition to our team.

Heather is a policy scholar with a PhD in research on the evolution of tribal sovereignty in the U.S. as impacted by Heather Cahoon.AIA.headshotmajor pieces of federal Indian policy and subsequent interpretations by the U.S. Supreme Court. She has worked with numerous tribal, state and non-profit organizations to address socioeconomic issues facing American Indians in Montana and, in general, seeks to further decolonization as it relates to rebuilding indigenous governments, economies and other social institutions. She holds an Interdisciplinary PhD in History, Native American Studies, and Anthropology from the University of Montana.

A member of the Confederated Salish and Kootenai Tribes, she was born and raised on her reservation but now resides in Missoula where she has taught for the University of Montana’s Native American Studies Department for the past six years. During this time, she was named UM’s first Eloise Cobell Institute Scholar, a title reserved for faculty who are continuing Cobell’s legacy of working for justice and equity for American Indians and tribal communities. She also currently serves on the board of directors for Western Native Voice.

In 2011, MBPC established the State-Tribal Policy Analyst position to promote sound fiscal and budget policy that can help reverse the history of economic injustice that has led many American Indians to unacceptable levels of poverty, unemployment, and poor health. Our work aims to inform policymakers on how tax and budget choices affect Indian Country, and to increase participation among American Indians in advocacy for sufficient investment in the state budget.

We are excited for all we can accomplish together. 

If you would like to contact Heather and welcome her to this important work, you can do so at hcahoon@montanabudget.org.