MBPC Releases New Analysis of Further Income Tax Cuts

Today, the Montana Budget & Policy Center released an analysis on the impact of cutting the state’s top income tax rate to 4.7%. The analysis models the impact on effective tax rates and average tax reduction for each income quintile. 

The analysis shows that the wealthiest 20% of households will receive 95% of the income tax reductions. The wealthiest 1% (with household income over $922,000 annually) will receive almost half of the tax cuts, with an average tax cut of nearly $9,000 each year. The analysis estimates that a further cut to the top rate will cost the state roughly $120 million each year in lost revenue.

Middle-income households will see almost no change. A household filing jointly with taxable income up to $95,000 already pays the lower 4.7% rate on all their taxable income. As a result, a cut to the top rate will go to the wealthiest households.

“The Governor’s push to further cut Montana’s top income tax rate will result in a significant tax cut to the wealthiest 5 percent, the same individuals already benefiting from past tax breaks,” said Rose Bender, director of research for the Montana Budget & Policy Center. “This will do nothing for most Montanans, and in fact, 99 percent of households in the middle will see not a single penny in reduced taxes.”

A recent report by the Montana Budget & Policy Center highlighted that over the last decade, federal and state lawmakers have cut income taxes for those at the top, with 80% of the tax benefit going to the richest 20%. 

“Lawmakers have a choice. Are they going to address the rising costs for working families or are they going to double down on more tax cuts for the wealthiest?,” said Bender.

Montana Budget and Policy Center (MBPC) is a nonprofit, nonpartisan organization founded in 2008 to provide in-depth research on budget, tax, and economic issues. MBPC’s mission is to advance responsible tax, budget, and economic policies through credible research and analysis to promote opportunity and fairness for all Montanans. 

The distributional tax analysis comes from the Institute on Taxation and Economic Policy (ITEP)'s Tax Microsimulation Model. Initially developed in 1996, with extensive updates and enhancements since, the model uses a large database of IRS taxpayer data and supplementary information, such as observations from the U.S. Census Bureau’s American Community Survey, to estimate tax incidence by income level for current and proposed tax laws. More information about the model can be found here.