Income Tax Cuts a Boon for the Wealthiest

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Taxes are a shared investment in communities. Shared revenue helps people pool resources to pay for things that individuals cannot do alone, such as educating the next generation, maintaining roads and bridges, and keeping our parks safe and clean. Like any good thing, public resources come at a cost. Without adequate tax revenue, communities are forced to make trade-offs. When states choose to shrink the tax base, less revenue is available to provide things like a quality public education system. As a result, costs get shifted onto local communities and residents go without needed services.

Eighty Percent of State and Federal Tax Cuts Have Gone to the Wealthiest

From 2021 to 2025, the Montana Legislature cut income taxes four times.[1] These income tax cuts are giving a massive windfall to the wealthiest Montanans, with the top income tax rate having fallen a tremendous 22 percent. And these rate reductions have not impacted all Montanans equally. In fact, nearly a third of the benefit has gone to the wealthiest one percent, those with an average annual income of over $2.5 million.[2] 

Prior to 2003, Montana had 10 income tax brackets, with each higher income bracket paying a slightly larger share of their income in taxes.[3] In 2003, the Legislature lowered Montana’s top income tax rate from 11 to 6.9 percent, where it stayed until 2021. In 2021, the Legislature dropped the top rate from 6.9 to 6.75 percent and then again to 6.5 percent.¹ In 2023, the Legislature cut the top rate from 6.5 to 5.9 percent. Then in 2025, the Legislature cut the rate again from 5.9 to 5.4 percent. If Montana had held strong on its tax system in 2003, the wealthiest Montanans would be paying an effective state and local tax rate similar to everyone else, as opposed to about a third lower.[4] 

At the same time, the federal government has been following the same path of tax cuts for the wealthy. In 2017, Congress enacted large tax cuts that were skewed toward some high-income individuals and corporations.[5] Then, in the summer of 2025, Congress extended and expanded those cuts.[6] Eighty percent of these federal tax cuts went to the richest 20 percent of Montanans.² The wealthiest one percent alone received nearly a third of the cuts, substantially more than the than the seven percent received by the lowest 60 percent combined.

These changes have compounded a state and local tax system that was already falling more sharply on Montanans with lower and more moderate incomes than the wealthy. Looking at state and local taxes paid by income level in Montana, the wealthiest Montanans pay lower tax rates as a share of their income than every other income group.

Cost of Tax Cuts is Over $2.5 Billion Each Year

Not only are recent tax cuts inequitable, but they are also expensive. In 2026, federal and state tax cuts enacted in the last decade will cost over $2.5 billion.² That’s about half of the Montana general fund budget for the 2027 biennium and is nearly twice the amount the state spends on education each year[7]^,’[8] As the tax cuts benefit the wealthiest the most, the top 5 percent pocket over $1.5 billion each year in state and federal tax cuts, more than the $1.3 billion the state spent on K-12 education in FY 2026.⁷ 

At the state level, from income tax cuts passed from 2021 to 2025, Montana is giving up $500 million in revenue each year moving forward, one-fifth of the annual general fund budget.^{1, 7} Putting this large of a share of collective state revenue toward income tax cuts for the wealthy is an abysmal use of state resources. These same resources could be used to help small communities fund badly needed infrastructure projects like replacing outdated sewer and water systems, or help keep our children safe by replacing lead pipes in schools so the water is not contaminated. Instead, Montana has chosen to throw this money out the door to those who need it the least.

Montana Should Learn From Other States and Protect Critical Revenue

Tax-Cutting States Struggled to Balance Communities’ Needs

In recent history, other states have cut taxes disproportionately for the wealthy, with the flawed intention of stimulating the economy through trickle-down economics. In the decade following the great recession of 2008, 18 states cut their personal and/or corporate income tax rates.^[9] These cuts were followed by sharp increases in public college tuition, cuts in school funding, and a weakening of income supports like unemployment insurance, which contributed to a slower economic recovery. And prior to that, during the economic growth from 1994 to 2001, half of states cut income tax rates, then saw revenues fall and budgets cut during the following recession.

Kansas Underperformed Economically Following Tax Cuts

The most notable lesson of recent history comes from Kansas and began in 2011-2012.⁹ Following the lead of then-Governor Sam Brownback, the Kansas legislature cut the income tax by almost 30 percent and the tax rate on certain businesses to nothing.^[10] Following those cuts, Kansas underperformed most neighboring states and the nation in economic activity. Revenues plummeted, leading to cuts in education and vital services and to a downgrade of the state’s bond rating, a measure of a state’s financial health. As a result, in 2017, Kansas raised income tax rates back to their starting level and repealed the business profits exemption.

A Fairer Tax Code Is Good for Economic Growth

Rather than cutting the tax rate that favors those at the top, more targeted policies like child tax credits help to equalize the tax code, reducing the need for families with low and middle incomes to pay a larger share of their income in taxes than the wealthy. As of 2026, 15 states have enacted a child tax credit to help improve health and economic outcomes for children.[11]^{, [12]} As families with lower and moderate incomes who receive the benefit are more likely than higher-income families to directly spend the credits in their local communities, the money provides an economic boost. The federal enhancement to the Child Tax Credit in the early 2020s is evidence of this economic stimulation.[13] 

Protecting Our State Tax Base Keeps Montana Communities Strong

Montana must start thinking about revenues to support our communities in the long-run, rather than short-term tax cuts to benefit the wealthiest. The place to start is by preserving the current income tax system. Continued erosion of Montana’s tax base will only lead to one place – a lack of adequate revenue to support things like educating the next generation, investing in community water and sewer projects, and ensuring our communities are safe through fire and police. 

The wealthiest are already benefitting with over $2.5 billion each year in state and federal tax cuts – that is enough. Now is the time for our leaders to hold strong, think long term, and make sure they are taking care of pressing needs today and tomorrow. Conserving resources and saving for a rainy day have always been Montana values. Enough if enough. Montana must hold strong to ensure that working families can continue to raise their families in safe, healthy communities.

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ENDNOTES

[1] Schaefer, S., “A History of Recent Individual Income Tax Changes in Montana,” Legislative Fiscal Division, Feb. 25, 2026.

[2] Institute on Taxation and Economic Policy, “Montana – Income Tax Look-Back,” May 8, 2026, on file with author.

[3] Montana 58th Legislature, “Income Tax Reduction with Revenue from Limited Sales Tax,” SB 407, enacted on Apr. 30, 2003.

[4] Institute on Taxation and Economic Policy, “Montana – Prior to 2003,” Jan. 18, 2024, on file with author.

[5] “Tax Cuts and Jobs Act of 2017,” Public Law No. 115-97, Dec. 22, 2017.

[6] “An Act to Provide for Reconciliation Pursuant to Title II of H. Con Res. 14,” Public Law No. 119-21, July 5, 2025.

[7] Legislative Fiscal Division, “2027 Biennium Fiscal Report,” Aug. 2025.

[8] Legislative Fiscal Division, “2027 Biennium Fiscal Report, Section E,” Aug. 2025.

[9] Tharpe, W., “States’ Recent Tax-Cut Spree Creates Big Risks for Families and Communities,” Center on Budget and Policy Priorities, Nov. 30, 2023.

[10] Mazerov, M., “Kansas Provides Compelling Evidence of Failure of “Supply-Side” Tax Cuts,” Center on Budget and Policy Priorities, Jan. 22, 2018.

[11] Butkus, N., “State Child Tax Credits Boosted Financial Security for Families and Children in 2025,” Institute on Taxation and Economic Policy, Sept. 11, 2025.

[12] Michelmore, K., “Tax Credits and Child Outcomes: Lessons from the U.S., U.K., and Canada,” National Bureau of Economic Research, May 2025.

[13] Smith, K., “Expanded Child Tax Credit and Earned Income Tax Credit Boost Local Economies,” Economic Security Project, Nov. 3, 2022.