Jan. 30, 2013 10:18 AM
JOHN S. ADAMS
Tribune capital bureau
HELENA — The Senate Taxation committee on Wednesday heard testimony on a measure that would reduce the income tax rate for the highest income earners by one percent.
Senate Bill 170, by Sen. Art Wittich, R-Bozeman, would reduce the tax levied on the highest income tax bracket from 6.9 percent to 5.9 percent.
According to the fiscal note on the bill, the measure would reduce state tax revenues by an estimated
$125 million in the next biennium and $170 million in the 2016-2017 biennium.
Wittich said those revenue losses would be made up by a prospering economy.
“The greatest way to increase prosperity is not through property tax decreases it’s through income tax decrease,” Wittich said. “If people keep more of their own money it’s better for them, better for new businesses and better for Montana.”
The measure seeks to offset the estimated revenue losses by increasing the corporate income tax rate by 1 percent.
Nancy Schlepp, president of the Montana Taxpayers Association, testified in opposition to SB170 arguing it would make Montana one of the highest corporate income tax states in the region.
“Lowering your corporate income tax rate is always the best way to stimulate the economy,” Schlepp said.
Wittich said he would be willing to amend the bill to remove the corporate income tax increase.
Tara Veazey, of the Montana Budget and Policy Center, pointed out that the fiscal note takes Wittich’s propose corporate income tax increase into account. If the corporate income tax increase were stricken from the bill it would further reduce state tax revenues by an estimated $22 million per year.
Veazey, who testified against SB170, said the highest income earners are already paying a lower percent of their total income in taxes. Veazey cited a study by the Institute on Taxation and Economic Policy which found that in Montana, the top 1 percent of income earners pay 4.7 percent of their total income on state and local taxes, while the lowest 20 percent pay 6.3 percent of their total income in taxes.
“We all have an interest in a strong economy that provides more and better jobs for all Montanans. Where we disagree is how tax policies interact with the economy,” Veazey said.
Veazey also cited a September 2012 report by the non-partisan Congressional Research Service that analyzed the top tax rates since 1945.
“They looked at 65 years of data and found no relationship between cutting upper income taxes and growth in the economy,” Veazey said.
Veazey said reducing income taxes on the wealthy would shift the tax burden to other taxpayers and would create an unstable revenue stream for the state. If the state faced another recession, it would negatively impact public education, state services and infrastructure. “Ultimately people and businesses invest in places where infrastructure is strong and can be maintained, where they have access to quality schools, and a trained and educated workforce,” Veazey said.
No proponents spoke in favor of the measure.
Wittich said his bill was a more fiscally responsible tax policy than the one proposed by Democratic Gov. Steve Bullock. Bullock wants to provide homeowners with a $400 property tax rebate at a cost of about $100 million to the state.
“(Bullock’s) program is a gimmick,” Wittich said. “This tax decrease will allow for long-term economic growth. We should put our money to something that has long-term benefits.”
The committee did not immediately take action on the bill.