To Members of the Montana Senate:
On behalf of National Taxpayers Union’s (NTU) supporters in Montana, I write to provide our thoughts and concerns about various tax hikes being considered by the Montana Senate, including those proposed by Governor Bullock’s 2019 biennium budget, as well as SB 354, introduced by Senator Caferro. In short, by relying on more taxes from the pockets of Montanans to pay for greater government spending, these proposals are fiscally irresponsible.
A major component of the Governor’s tax plan is to create a new income tax bracket with an increased rate of 7.9 percent – up from the top marginal rate of 6.9 percent – for individuals with income of more than $500,000. This is ill-considered for two primary reasons. First, many small businesses elect pass through-taxation. Raising the tax would hurt a large number of Montana’s entrepreneurs. Second, individual income taxes act as a deterrent to economic growth. As the American Legislative Exchange Council‘s (ALEC) Rich States, Poor States study indicates, states with no or low income tax levies generally perform better economically and experience greater population growth. States that rely heavily on income taxation tend to have slower economic growth. In the same study Montana comes in 40th place, and raising the income tax will only make the state’s prospects worse.
The Governor’s budget, along with SB 354, would raise sales and consumption taxes. The cigarette taxes being considered by the Senate would raise the tax by up to $1.50 per pack. Given that Montana’s neighbors all levy significantly lower cigarette taxes, these proposals would exacerbate the problem of cross border purchases. The Tax Foundation, a non-partisan think tank, has estimated that nearly 25 percent of cigarettes consumed in Montana are smuggled into the state. This ranks Montana as having the 12th highest cigarette smuggling rate in the country. Not only would the cigarette tax hike lead to greater smuggling, given the regressive nature of the tax levied, the impact would fall particularly hard on poorer Montanans.
In addition, the Governor’s budget and SB 354 would levy a tax on vapor products for the first time. This is especially unwise; smokers are increasingly turning to vapor and electronic cigarettes as a way to kick their bad habit for good reason. A recent study by Public Health England found that vapor products are 95 percent less harmful than traditional cigarettes, in part because they deliver nicotine without the harmful aspects of combustion.
The Governor’s budget also proposes to raise taxes on wine by $0.27 per liter, raising about $5 million. Like other sales and consumption taxes, this proposal is a regressive tax hike that will only lead to more government spending.
Finally, the Governor also proposed a six percent consumption tax on medical marijuana. While NTU takes no position on the legalization of marijuana, the facts are clear: the citizens of Montana have supported classifying marijuana as a legitimate medical treatment. Treating marijuana differently than other prescriptions for tax purposes is unwise and NTU sees no valid reason for the disparate treatment.
Not only does the Governor’s budget rely too heavily on tax increases, it also embraces fiscal gimmickry. For example, the plan would provide an employer a $1,000 tax credit for hiring people through an on-the-job apprentice program. These sorts of targeted tax incentives are unwise as they tend to benefit large employers with access to apprentice programs.
While no budget is perfect, NTU is concerned about the tax increases and spending proposals offered by Gov. Bullock’s 2019 biennium budget, as well as the tax hikes included in SB 354. Accordingly, we encourage you to keep these concerns in mind as you hopefully work toward charting a more fiscally responsible course for Montana.
Counsel and Government Affairs Manager