MTPR

Tax Overhaul Means $20 Million Hit, But No Special Session Needed, Bullock's Office Says

Jan 18, 2018

Governor Steve Bullock’s budget director today said the federal tax bill passed by Congress is expected to result in a $20 million loss in state revenue over the next two years. And that loss is not significant enough to call a special legislative session or require further cuts to government spending.

About two weeks ago, Montana Department of Revenue Director Mike Kadas warned that the federal tax bill could deal up to a $46 million blow to the state general fund. Kadas said that could mean state lawmakers would have to come back for a special legislative session to deal with it.

But now, State Budget Director Dan Villa says that’s not the case. Villa says the federal tax overhaul’s impact to the state budget is not as significant as some initial projections.

"And we do not anticipate the need for a special session at this time,” Villa says.

But confidence in the executive branch’s analysis is not 100 percent.

In a memo to the governor's office Wednesday, Revenue Director Mike Kadas revised his initial analysis and, there are still, “competing legal theories” about the impact of the federal tax bill. Kadas says one of those theories could reduce general fund revenues by as much as an additional $33 million per year.

Again, here’s Dan Villa, the governor’s budget director.

"With experts on both sides, we thought it appropriate to err on the side of less loss to the state revenue, because that was really the legislative intent in Congress. It was not the intent to have that implication come down on the states.”

Supporters of the federal tax bill say cutting taxes will boost the economy and increase wages, which could result in a long term increase to state revenue. Villa says his office didn’t factor analysis along those lines into their projections, although he’s skeptical of those claims.

When the bill passed Congress Governor Steve Bullock tweeted that it was a bad deal for Montana.
Montana Senate Majority Leader Fred Thomas, disagrees.

“We don’t see any impacts except positive impacts.”

Thomas says the analysis by the governor’s office showing a revenue hit to the state is nothing but politics. He disagrees with the Bullock administration’s interpretation that new federal deductions will also result in lower state tax revenue.

While the state’s budget is not yet back on solid ground after it fell apart last year, when a special legislative session imposed more cuts, Thomas says the federal tax bill does not pose a new threat to state revenues.

“We’re very cautiously optimistic about trends in revenue," Thomas says. "Setting the federal legislation aside, we’re still very positive about results that our income has firmed back up and we may get closer back on track.”

Brent Mead with the Montana Policy Institute, which favors free markets, is also skeptical of the governor’s analysis of the federal tax bill.

“I would disagree that we’re going to take this revenue hit," Mead says, "but I don’t think it is a dishonest analysis. I think it is a product of how their systems are set up."

Mead says it’s difficult to say what exactly the federal law impact on state revenues is going to be. But in the long run he expects the bill to encourage businesses investment and wage growth.

There is no consensus on the new tax law’s impact on the state or its economy, although political office holders are often quick to praise and damn it. 

While the $20 million revenue loss estimated by the governor’s office is not enough to trigger more government cuts immediately or another special session, it does diminish the margin of error the state has going forward in meeting revenue projections.