Tax reform: The devil is in the details

This session, we are being treated to a number of bills proposing to simplify the Montana income tax system.

Nearly everyone agrees with the basic premise of simplification.

However, when an actual bill is proposed, the devil is in the details. One bill we have been grappling with in the Senate Taxation Committee on the topic, SB 282, proposes to replace the current Montana list of credits, deductions, and additions on the Montana form and replace it with the federal schedules instead.

While the federal income tax regime is far from simple, the theory is that a taxpayer will only have to suffer through the one complicated system, instead of two.

While SB 282, as introduced, largely met the revenue neutrality test (in that it will raise neither more nor less revenue for the State of Montana), one problem emerged as it had imbedded within it a tax reduction for individuals earning over $150,000, especially those taxpayers with capital gains income.

The tax reduction for that category of taxpayers created a loss of revenue that has to be made up elsewhere. As a consequence, SB 282 creates an effective tax increase for many taxpayers in the middle income ranges. Especially hard hit, for some reason, are taxpayers over 65 years of age.

As introduced, I cannot support SB 282. However, because the bill was introduced by our committee chair, who did not intend those negative consequences of his bill, we are working hard to come up with amendments to make the bill workable and correct the problems in it — while working to continue simplifying the tax process.

To avoid shifting the tax burden to the middle income taxpayers, the tax break for capital gains income may have to be abandoned. And that is sure to anger the Montana Chamber of Commerce and their allies.

As always, I'm interested in listening to your thoughts and ideas on the legislative process. Your input ensures that citizens continue to run our democracy. Please email me online at http://leg.mt.gov/message/, call me at 406-444-4800, or write me at Montana State Senate, PO BOX 200500, Helena, MT 59620.

Thanks for reading — until next time.