Montana enacts pro-growth tax cut and now has lower rates than Nebraska

According to the 2020 U.S. Census figures, Montana grew 9.6% over the last ten years, and as a result has gained an additional congressional seat. The last time the state had two U.S. House seats was in 1992.

In the wake of the good news, Montana Gov. Greg Gianforte decided it is time to continue welcoming people to Big Sky Country by modernizing the state’s tax code. While not completely without compromise and political ‘bumps’ along the way, the state was eventually successful in reducing the top marginal individual income tax rate the number of tax brackets.

“With one of the highest income tax rates in the Mountain West, Montana isn’t competitive and is losing out on jobs and opportunity,” Gianforte said in a May 6 tweet. “Today, I signed two bills to cut Montanans’ income taxes and simplify our complex tax code to make our state more competitive.”

Why is this important in Nebraska? Before this change, Nebraska had a lower top personal income tax rate than Montana, but after the enactment of these two bills, Montana has moved ahead of Nebraska with a lower tax rate and fewer brackets. These changes are by definition good tax policy, which results in making Montana a more attractive place to live and do business.

There were multiple pieces of legislation included in the changes:

• Senate Bill 159 – reduces the top personal income tax rate from 6.9% to 6.75% starting in tax year 2022. In tax year 2020 all income above $18,700 was subject to the high rate.

However, SB 159 includes a provision stating that the bill’s tax rate changes will terminate on December 31, 2023, if SB 399 is also signed into law. It was also signed on May 6.

• Senate Bill 399 – this legislation further reduces the top marginal individual income tax rate to 6.5 % and replaces the 7-tax brackets with two: 4.7 % for incomes of $20,500 or less and 6.5 % for incomes over $20,500. For joint filers it is $41,000.

Montana’s actions are another reason why Nebraska needs to modernize its tax code. Lawmakers need to advance LB432 to reduce the top corporate tax rate. Like Montana’s reduction, the change under LB432 is not huge, but it is a step in the right direction to keep the state somewhat competitive with other states that are enacting more aggressive reform.