In 2003, the Montana legislature made significant changes to Montana’s income tax system through Senate Bill 407 (SB 407). The changes enacted in SB407 have had a significant negative impact on Montana’s revenue streams, yet are often ignored in discussions about the state’s current revenue challenges. In 2005, SB 407 decreased total income tax revenue by $100 million (13%), with almost half of the benefit going to families earning incomes over $500,000 per year.

In order to protect our future, we need a tax system that maintains the schools, roads, and natural resources that create opportunities for all Montana families. With Montana facing potentially severe and damaging cuts to these public structures, it’s time to take a hard look at the usefulness of SB 407’s costly tax changes.

This policy brief will analyze the impact of one portion of SB407--changes made to Montana’s income tax brackets. MBPC finds that the bracket collapse has been unaffordable, disproportionately targeted to upper income Montanans, and ineffective as a tool for economic growth.