HELENA — As expected, Gov. Steve Bullock on Friday vetoed the first major Republican tax cut bill to reach his desk, calling it “fiscally irresponsible.”
House Bill 166, by House Majority Leader Keith Regier, R-Kalispell, would have lowered Montana’s individual income tax rates and reduced state general fund revenue collections by $164 million over the next four years.
The veto was Bullock’s first of the 2015 legislative session.
Two years ago, Bullock said he had to veto $150 million in spending bills that would have left Montana’s budget unbalanced and put its fiscal health at risk.
“I would not think the Legislature would want to go down that path again,” Bullock said.
In his veto message, the Democratic governor said the Republican-controlled House and Senate had disregarded his proposed balanced budget for the next two years. Instead, the Republican-controlled Legislature has proposed $945 million in new spending and tax cuts. The Legislative Fiscal Division has said the budget at this point faces a $47 million deficit, he said.
“HB166 accounts for a significant part of the spending that has been proposed,” Bullock said in his veto message. “HB166 would primarily benefit the wealthiest individuals and cost more than $160 million over the next four years.
“Almost 50 percent of the benefit of HB166 would go to the top 10 percent of income earners. The experience of other states shows that decimating your revenue base to benefit large corporations and the wealthiest individuals does not work to stimulate the economy.”
States like New Jersey, Wisconsin and Louisiana “have seen these trickle-down experiments fail, resulting in funding cuts to schools, roads and other services and forcing these states into billion dollar deficits,” Bullock said.
He cited the strength of Montana’s economy and the state’s fiscal soundness.
Bullock said the Montana economy is thriving. The state unemployment rate has dropped by 25 percent over the past two and one-half years to 4.2 percent and is 1.5 percentage points lower than the national average. He said Montana is the fifth fastest state for employment growth.
The governor said Montana’s state and local tax burden is among the nation’s lowest, ranking 37th in dollars per capita, while North Dakota and Wyoming rank fourth and fifth highest respectively. Montana now has the sixth best tax climate for business for business, he said.
“I take my job to be a responsible steward of Montana taxpayer dollars seriously,” Bullock said. “I will not entertain fiscally irresponsible bills, like HB166, that undercut Montana’s fiscal health and the strong job-creating climate that comes from it.”
The veto comes as no surprise.
Bullock had criticized the bill at his midsession press conference last week. His Revenue Department director, Mike Kadas, testified against it at every hearing.
In response to the veto, Regier said, “Hardworking Montanans have been paying taxes that have supplied our state’s ending fund balance over the years. It is taxpayer money and they deserve to keep some of that in their pockets. With this tax break, those in the lowest tax brackets would have seen the greatest percentage reduction.”
Regier said he was disappointed, but not surprised, by Bullock’s veto.
“I was hoping that roughly 450,000 Montana taxpayers could get a little bit of relief, but the governor didn’t see fit to do that,” Regier said. “He had a golden opportunity to side with the people of Montana and his missed it.”
Although Bullock talks about being fiscally responsible, the governor’s budget would increase state spending by 14 percent over the next years, Regier said. Much of the $945 million in new spending proposed for the session, including tax cut bills, would have fallen away if Bullock had signed HB166, Regier said.
It will take a two-thirds majority vote in both the House and Senate to override the veto of HB166. However the bill passed by nearly party-line votes in both Houses, making that prospect unlikely. Republicans have a 29-21 majority over Democrats in the Senate and a 59-41 majority in the House.
HB166 would have reduced Montana’s income tax rates by two-tenths of 1 percentage point in each of the state’s seven tax brackets. In the highest bracket for taxpayers with taxable income exceeding $13,900, for example, the tax rate would drop to 6.7 percent from the current rate of 6.9 percent.
It was not a one-time tax cut. Had it become law, the reduced income tax rates would have been remained in place until a future Legislature changed them.
The other major tax reduction bill still pending in the Legislature so far is SB200, by Sen. Duane Ankney, R-Colstrip. It would reduce individual income taxes, widen the tax brackets and reduce the capital gains tax credit rate.
His bill would cut income taxes and state tax collections by $193 million over four years. Like Regier’s bill sought to do, the changes in SB200, if it passes, would remain in place until a future Legislature changes it.
SB200 has passed the Senate and is pending in the House.