Montana’s state government stands to lose about $30 million as a result of tax reforms that could be voted on this week by the U.S. Senate.
Department of Revenue Director Mike Kadas advised the governor’s office ahead of the Senate vote that the tax reforms would cut contributions to the state general fund by $29.8 million over the next two tax years. A House tax reform bill passed in early November would cut general fund contributions by $9.9 million.
“There are a number of proposed changes to federal corporate and individual income tax that would affect Montana, largely due to changes in federal taxable income,” Kadas said in a letter to state budget director Dan Villa. “I have concerns that these changes will have a net impact that negatively impacts the state general fund.”
Montana’s legislature met in early November to patch a $227 million hole in a two-year state budget, now only five months old and already struggling.
The losses from federal tax reform come from three areas. Tax proposals by U.S. House and Senate Republicans would cut corporate income taxes from 35 percent to 20 percent. State taxes, which are calculated using already filed federal tax returns to determine adjusted income, would see a $13 million loss as a result of the federal corporate tax cut.
In the Senate, GOP lawmakers are calling for the elimination of the federal mandate that individuals either buy health insurance or pay a fee. The mandate is part of a carrot-and-stick approach to incentivize people to get insurance under the Affordable Care Act, better known as Obamacare. People who don’t buy health insurance have to pay a penalty that on average is nearly $500.
There’s a 2.75 percent tax on some insurance premiums in Montana. That tax would end with the individual mandate, and the state would lose $11 million as a result, Kadas reported.
The big loss would come from the federal government cutting mineral royalty payments to states in which federal land was drilled or mined for oil, gas and coal. In the House tax reform bill, the royalties would be cut in an effort to limit federal spending to offset tax cuts. Montana’s loss is estimated by the federal Office of Management and Budget to be about $23 million a year.
Offsetting the revenue losses would increase state income taxes paid by individual Montanans. The amount of income taxes Montanans pay would increase as new federal tax deductions diminished the amount of income Montanans could adjust to help lower taxes owed to the state.
The Senate is expected to vote on its tax bill Friday.