Gianforte’s Tax Cuts– Been There, Done That

Gianforte’s Tax Cuts– Been There, Done That

By Ken Toole

The great thing about human beings is that we learn from past mistakes.  Unless you are Governor Greg Gianforte and his Republican allies in the legislature.  As the Governor rolls out his package of tax cuts, and legislators clamor to get on board, it seems that no one remembers the 2003 Montana Legislature and Senate Bill 407, Judy Martz’s big tax cut plan that failed to deliver on its promises.

But before getting into the lessons from Senate Bill 407, let’s refresh ourselves on the economic theory that is driving Republicans to promote big tax cuts for the wealthy. It’s called “trickle down” economics.  The idea is to give tax cuts to wealthy people who will then hire more people and pay more taxes which will lead to a better world.  It turns out that cutting taxes on the wealthy just allows them to put more dollars into things like stock buybacks, offshore accounts, and other financial mechanisms that simply make them richer and do little for community investment.  Even though most economists have debunked “trickle down economics,” Republican politicians cling to it as an article of faith and continue to promote it.

Now, back to 2003 and Senate Bill 407.  Judy Martz was the Governor, and Republicans held majorities in both houses of the legislature.  Then as now, Republicans were supremely confident that tax cuts result in increased revenue by stimulating growth.  So they passed significant reductions to capital gains taxes and  the income tax rates paid by wealthy individuals.  

Specifically, SB 407 reduced the tax rate on top income earners (that’s tax speak for rich people) from 11% to 6.5%.  It also created a 1% tax credit for capital gains income (that’s tax speak for money people make selling things like stock and real estate).  Sounding familiar?  Gianforte is proposing to reduce the top income tax rate along with giving a tax credit to people paying capital gains taxes.  

But the real story about SB 407 is just how wrong the projections of the effect on  public services and state revenue turned out to be.  It ended up costing more than its promoters promised. . .lots more. In 2011 the Department of Revenue conducted an analysis of the fiscal impact of SB 407.  Among other things the analysis concluded that the cut in income tax turned out to cost more than three times the projections during the 2003 legislature.  The cost of the capital gains tax cut was double the projections.  That meant much  less money available for schools, local governments, and basic public services.  Not surprisingly, the analysis also showed that the beneficiaries of these tax cuts largely turned out to be rich people.  

So, here we sit in 2023, just like 2003. Republicans control both houses of the legislature and the Governor’s Office.  And just like 2003, these politicians seek to cut taxes mostly on rich people.  But there is a big difference as well.  In 2003 the state was facing a budget crisis. Thanks to Joe Biden’s American Rescue Plan Act, in 2023 we have a big budget surplus and, along with that, we have the opportunity to invest in our institutions and infrastructure. While rural nursing homes are closing across the state, while the State Hospital is crumbling before our eyes, while cities and counties are struggling to make ends meet, while schools are hard pressed to find qualified staff, why would we make it a priority to give tax breaks to the wealthiest among us before those problems are addressed?  The answer from the Republicans is, “Just be patient. It will all trickle down.”

Ken Toole was a member of the Senate Tax Committee in 2001, 2003, and 2005.  He served as the vice chair in 2005.  He served on the Public Service Commission from 2007 to 2011.  He was also the President of The Policy Institute, a private group which conducted research on economic issues including taxation.