Montana officials now say federal tax cuts will create a manageable reduction in state revenue collections — this after forecasting deep losses requiring an emergency session of the state Legislature.
State Budget Director Dan Villa said Thursday that federal tax changes would result in a $12 million loss in state tax collections for the current tax year and $15.9 million for tax year 2019. The lost revenue stems from federal cuts to the corporate income tax and elimination of the federal health mandate for individuals.
The losses were not enough to force a special session of the Montana Legislature as Department of Revenue Director Mike Kadas had feared two weeks ago, when tax officials expected federal tax collections to open a $29-million-a-year hole in state coffers. No cuts to state programs will result.
Initially, Department of Revenue analysts had expected a revenue loss of more than $70 million a year. A closer look at the new federal tax cuts passed just before Christmas proved otherwise.
The state no longer expects that it will have to duplicate a 20 percent federal deduction for pass-through businesses in the Trump tax plan. Revenue officials had said earlier that Montana would have to automatically duplicate the deduction because of the way state and federal tax law interact.
But state Senate Majority Leader Fred Thomas, R-Stevensville, countered with a legal opinion from legislative staff, which concluded that doubling the deduction was avoidable.
The debate over the 20 percent deduction isn’t likely to arise again until April 2019 when individual income tax returns under the new federal rules are first filed. At that point, Montana’s Legislature will be in regular session to fix any issue.