By Manish Bhatt, Tax Foundation

(Editor’s Note: The Tax Foundation recently published a report on Montana’s new tax changes, explaining them and evaluating their potential effectiveness.)

Montana is renowned for its vast natural beauty and outdoor recreation, but the state also boasts a competitive tax climate, ranking fifth in our 2023 State Business Tax Climate Index. Like many other states, its coffers are overflowing, and lawmakers have rightly prioritized tax reform to share the strong revenue position with those calling the Treasure State home. Legislators should build on these efforts and provide sustainable and sound property tax relief.

Short- and Long-Term Tax Reforms

In 2023, Montanans will be eligible for tax refunds and rebates on income and property taxes.  Generally, one-time, or short-term, tax relief options are not efficient or effective and can exacerbate the negative effects of inflation. However, these measures were paired with long-term, pro-growth tax reforms that could boost the competitiveness of the state overall.

Montana’s seven individual income tax brackets will be consolidated into two in 2024. Previously, the top rate was set to drop to 6.5 percent (down from 6.75 percent), but Senate Bill 121 will reduce it further to 5.9 percent. The bill also raises the state Earned Income Tax Credit to 10 percent of the federal credit. House Bill 221 creates two rates (depending on income and filing status) for taxing capital gains—4.1 percent and 3.0 percent—replacing a 30 percent net long-term capital gains deduction set to take effect in 2024.

Businesses in Montana will benefit from House Bill 212, which raises the business property tax exemption from $300,000 to $1,000,000; this will eliminate 78 percent of current taxpayers from the rolls at a cost of a mere $9 million a year, absorbed by the state. Additionally, Senate Bill 124 revises corporate income tax apportionment from three-factor (double-weighted sales factor) to single sales factor beginning in 2025.

Principled Property Tax Relief Is Needed

Overall, these reforms are commendable and other states should follow the example Montana has set. However, like elsewhere in the Mountain West, Montana property owners are facing rising property values and, in turn, are saddled with greater property tax burdens. Property tax collections don’t need to keep pace with soaring property values because the cost—and value—of government services isn’t dependent on those values. While inflation has increased the cost of government, there’s no reason why a community where property values have increased by, say, 40 percent should have to remit 40 percent more in property taxes from that same set of properties. Residents are not receiving 40 percent more or better government for their money.

Ballot Initiative 2, now before the Supreme Court after an attorney general’s determination that the initiative is legally insufficient, seeks to limit property taxes through several provisions, including: (1) establishing 2019 as the base for real property valuations, (2) instituting a valuation assessment limit of two percent unless the real property is newly constructed, significantly improved, or changed ownership, and (3) limiting the amount of ad valorem tax that may be assessed to one percent of the real property’s value.

Despite the good intentions, this proposal is not sound tax policy and could create detrimental market distortion. Assessment limits are problematic because they incentivize property owners to remain in their homes longer, as purchasing a new residence triggers a new assessment and, potentially, higher taxes. This often disproportionately impacts younger or lower-income purchasers as the supply of starter homes is reduced when more established, higher-income property owners forgo new purchases.

Moreover, assessment limits could result in similar properties in the same neighborhood having dramatically different property tax obligations depending on purchase date—benefitting those with longer tenures in their homes and, effectively, penalizing more recent purchasers (many of them younger homeowners). Appraisal caps also disincentivize new construction and major home improvements, both of which could result in the owner paying higher property taxes.

The ballot initiative applies to many classes of real property, including multifamily rental units, but it excludes business machinery and equipment. To be clear, including rental property in the relief is positive because the tax burden is less likely to shift from single-family homeowners to lessees in the form of higher rent, which could occur if the measure was less neutral. While the legislature has raised the exemption limits for business property, it will be important to ensure that such equipment is not disproportionately impacted by higher levies in the future to recoup lost revenue from other property classes.

Assessment limitations provide property tax relief for homeowners, but they come with real costs, distorting housing markets to the detriment of many of the homeowners—and would-be homeowners—the limits purport to help. Fortunately, Montanans and their lawmakers have options. They could consider levy limits, which restrict the growth of revenue collections from property taxes, rolling back millages across the board to limit the amount that a jurisdiction’s property tax collections can increase from rises in assessed value alone. This can help avoid the disparities that result from assessment limits, lowering rates for everyone when collections rise due to a spike in assessed values, rather than protecting some homeowners to the detriment of others. If states like New York and Massachusetts manage to get this right, surely Montana can too.

Policymakers could also pursue what some states call “compression,” which is when the state uses its own funds to buy down local property tax rates. Simply capping rates, however, is not effective and would not protect property owners from valuation surges or from other policies intended to raise collections. And compression itself may backfire unless paired with levy limits; without them, local governments could pocket the state transfers and later raise millages back to where they had been previously.

Absent a special session, the Montana legislature next convenes in 2025, meaning taxpayers may have to wait for relief that is sorely needed today. This creates a precarious situation and one in which hasty decision-making could leave the state dealing with long-term negative outcomes. Ballot Initiative 2, regardless of whether it goes before voters, has a flawed design that homeowners may come to rue, but it speaks to a real and legitimate concern over rapidly rising property taxes. Policymakers should pursue principled property tax reform that benefits all property owners without creating market distortions or unfairly shifting the tax burden.

Governor Greg Gianforte recently opposed a proposed resource management plan amendment offered by the Bureau of Land Management (BLM) that would restrict responsible coal production in Montana.

“Affordable power generated by coal keeps the lights on in Montana and fuels manufacturing across the country and world,” Gov. Gianforte said. “I’m urging the Biden administration to scrap its plan that would undermine coal production in eastern Montana, eliminate a source of funding for our public schools, and destabilize our energy grid.”

Last week, the governor submitted a letter to BLM Director Tracy Stone-Manning and other agency officials as part of the public comment process for BLM’s Miles City Draft Supplemental Environmental Impact Statement/Resource Management Plan Amendment.

The BLM is currently contemplating changes to its coal screening process that would nearly block all coal reserves in Montana from production.

Revenues from coal reserves on state trust lands fund schools and other public institutions in Montana.

By Brett Rowland, The Center Square

A congressional watchdog repeatedly warned lawmakers about national spending and debt levels before a second of the Big Three credit rating agencies dropped the United States government’s credit rating down a notch.

Fitch Ratings made the decision recently to downgrade the government’s credit rating from the highest level of AAA down one tier to AA+. Fitch pointed to the U.S. government’s high national debt and deficits and an “erosion of governance.”

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” according to credit-rating agency. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process. These factors, along with several economic shocks as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade. Additionally, there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population.”

After the announcement from Fitch, Treasury Secretary Janet Yellen said the downgrade was “arbitrary and based on outdated data.” In 2011, S&P Rating dropped the U.S. government’s credit rating one notch. Moody’s is the only one of the Big Three that has kept the U.S. credit rating at the top level of AAA. 

But the federal government’s own agencies have repeatedly raised concerns about federal spending and debt.

In February, the U.S. Government Accountability Office’s audit of the federal government’s financial statements found it “continues to face an unsustainable long-term fiscal path.”

“The growing debt is a consequence of borrowing to finance increasingly large annual budget deficits,” according to the report. “GAO projects that spending for Social Security, federal health care programs, and all other federal program spending increases more than revenue, resulting in the primary deficit; and net interest spending, which primarily represents the federal government’s cost to service its debt, steadily increases over the next 30 years, further widening the total budget deficits.”

The International Monetary Fund listed the United States’ debt as a percentage of GDP at 106% in 2021. Countries with high debt-to-GDP figures in 2021 included Cyprus (142.82%), Italy (146.55%), Singapore (163.89%), Eritrea (176.25%), Sudan (181.97%), Greece (212.4%) and Japan (221.32%). 

Still in the philosophy that they should be able to control what kind of kitchen stove American citizens can use, The Department of Energy is maintaining a grip on gas cooktops regulation, although loosening them somewhat following loud public outcry.

Ostensibly in the name of energy-efficiency, DOE published efficiency requirements for gas stoves so stringent that they would have been impractical for most consumers. Following strong public push-back, the agency is slightly loosening the BTU limits after reviewing data submitted by a trade association and a utility company,

Much of the media denounced concerns from the public about the government banning gas stoves, calling them conspiracy theorists, but the agency did publish a notice calling for new regulations which would have limited BTU consumption to 1,204, down from a baseline of 1,775 British thermal units, or kBtu per year. The proposal is so impractical that for all purposes it outlaws the stoves.

More recently, in a notice of data availability published in the Federal Register, DOE floated less stringent efficiency requirements for gas stoves, increasing them slightly to a limit of 1,343 kBtu per year, down from a recalculated baseline of 1,900 kBtu per year.

The Association of Home Appliance Manufacturers and PG&E provided the DOE with data on cooktops with higher consumption rates, which the agency had not used in its initial efficiency testing.

According to POLITICO, “Other comments led DOE ‘to better understand’ what features consumers want in a gas stove, including multiple high input rate burners and continuous cast-iron grates.” 

Manufacturers would be required to spend more than $2.5 billion to comply with the originally proposed rules, according to the DOE’s own estimates, and consumers would save just 12.5 cents a month in energy costs.

The mandates would have been so strict as to make 96 percent of gas stoves on the market noncompliant.

In June the House passed the Save Our Gas Stoves Act, which would prevent the DOE from advancing its unworkable stove requirements.

The National Association of Manufacturers has held high-level discussions with policymakers on the importance of feasibility, affordability and consumer choice in rulemaking.

To that end, in June the NAM and members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations created the Manufacturers for Sensible Regulations, which aims to combat the recent regulatory onslaught by federal agencies.

“Manufacturers depend on regulatory clarity and certainty,” said NAM Managing Vice President of Policy Chris Netram. Throughout the year, the Department of Energy has proposed an unprecedented slew of regulations, and many were aimed at home appliances. The DOE is now taking steps toward a solution that is less likely to raise production costs significantly for manufacturers, and less likely to reduce the available features, performance and affordability for consumers.”

The Tax Foundation

The global tax deal is going mainstream. As Politico puts it, “the technical rules that were once solely the province of tax wonks in D.C. and Paris are being brought out into the public sphere.” Here’s what you need to know about it.

Developed by the Organization for Economic Co-operation and Development (OECD) and agreed to by more than 130 countries, the global tax deal would change where large multinational companies pay taxes (known as Pillar One) and create a global minimum tax (known as Pillar Two). It’s the latter making headlines.

Pillar Two would ensure that large multinational corporations pay an effective tax rate of at least 15 percent—an attempt to stop companies from moving their profits to tax havens (i.e., low-tax or no-tax jurisdictions).

Countries would have two options: they could change their domestic rules to comply with the global minimum tax or, if they don’t change their rules, other countries could tax their multinational companies to bring them up to 15 percent.

The Organization for Economic Co-operation and Development wants to level the international tax playing field.

This is the latest iteration of the OECD’s Base Erosion and Profit Shifting (BEPS) project, launched in 2013, to stop multinational corporations from gaming the international tax system. As a result of BEPS, dozens of countries (including the U.S.) tightened rules on multinationals. But the OECD believes these rules didn’t go far enough.

But the current approach wouldn’t level the playing field for two reasons.

First, the rules privilege some pre-existing policies over others. They treat refundable tax credits much more favorably than tax credits that are only available if a company has taxable income. Because many U.S. tax credits fall under the latter category, tailoring the U.S. system to the rules would cost over $100 billion.

Second, taking away one tool countries have to help businesses (taxes) doesn’t mean there aren’t others (subsidies). Countries that can spend more to support their businesses will have a leg up on countries that can’t.

Shifting income from one jurisdiction to another to reduce tax burdens is a real concern—one the U.S. acknowledged in 2017 by dramatically changing its tax rules for multinationals. The U.S. now has three minimum taxes all aimed at similar issues the OECD rules are attempting to address. However, none of the U.S. rules seem to qualify under the OECD standards.

The web of rules would be complex and there is much uncertainty, but it seems to be a losing situation for the U.S.

According to the best estimates, the U.S. Treasury is likely to lose revenue whether it adopts Pillar Two or not (if all other countries adopt the rules). Even if the U.S. complies, it is likely to lose $56.5 billion over 10 years. And if it doesn’t, that figure more than doubles to $122 billion.

The best way to avoid losing revenue is to ensure the U.S. continues to be a place where businesses want to invest and grow.

However, the global minimum tax would also undermine the U.S.’s attempts to encourage investment. For example, the federal government allows businesses to deduct research and development costs to spur innovation. But what happens if a multinational company uses that deduction and drops below the 15 percent threshold? Other countries could increase taxes on it, dampening Congress’s intended effect.

If the Treasury loses revenue to foreign governments, then taxes on domestic activity could rise to offset it.

Over the long term, if companies choose to avoid the U.S. when they’re deciding to invest, this could mean higher prices and less investment in innovation in the U.S., which means fewer of the cutting-edge products and services you enjoy and less money in your pocket.

Additionally, job opportunities and wages would likely decrease as businesses cut costs to make up for lost profits.

By Morgan Sweeney, The Center Square

Virginia Attorney General Jason Miyares is the latest to join a coalition of attorneys general “demanding answers” from global investment firm BlackRock Inc., questioning its ability to manage funds passively.

Montana’s Attorney General Austin Knudsen is one of the AG’s leading the action, even though the Montana still remains invested with BlackRock

Since August 2022, three groups of attorneys general representing 24 states have banded together in actions challenging company practices at BlackRock – the largest asset manager in the world and the first to reach $10 trillion in assets – claiming that it has allowed political persuasions to interfere with the investment of its clients’ funds.

Last August, 19 Republican attorneys general asked the Securities and Exchange Commission to investigate BlackRock’s relationship with China and assess whether the company used its influence to persuade advisees and investees into embracing its espoused environmental, social and governance values, otherwise called “ESG.”

They also expressed concerns that the company’s behavior didn’t align with antitrust law.

In May, 17 Republican attorneys general filed a motion with the Federal Energy Regulatory Commission, accusing the money manager of violating the Federal Power Act and the BlackRock 2022 Order.

The motion cites that the FPA prohibits “public utility holding companies” from purchasing more than $10 million in voting securities in another “utility;” if a company wishes to do so, it must remain a “passive” and “non-controlling investor” – which, the motion claims, BlackRock is not.

This latest action, led by Montana Attorney General Austin Knudsen, involves 15 attorneys general – all Republicans – with Virginia and New Hampshire being the newest states to join efforts. It’s a letter to “BlackRock-linked mutual fund directors,” which echoes the prior accusations of personal and political entanglement with professional matters.

“The overlapping web of personal and business relationships between major mutual fund directors and BlackRock raise red flags about potential conflicts of interest, and call even further into question the misguided investment strategies done in the name of ESG,” Virginia Attorney General Jason Miyares said.

According to a release from Miyares’ office, “six of the nine mutual fund directors [in question] have a relationship with BlackRock as either a BlackRock employee or a board member of a company where BlackRock owns more than 5%.” Such conflicts of interest violate the Investment Company Act of 1940 and “state principles of independence,” according to the latest letter.

Red states have begun divesting from BlackRock.

So far, Florida, Louisiana, Arizona, Texas, Missouri, South Carolina, Arkansas, Utah and West Virginia have all withdrawn their assets — totaling $4.8 billion — from BlackRock, according to Americans for Tax Reform.

On July 18, the Main Street Tax Certainty Act was re-introduced in the U.S. House of Representatives. Representatives Lloyd Smucker (R-PA) and Henry Cuellar (D-TX) introduced the legislation in the House and Senator Steve Daines (R-MT) previously introduced it in the U.S. Senate. The legislation would make the crucial Small Business Deduction permanent, which is currently set to expire at the end of 2025, reports the National Federation of Independent Business (NFIB).

“Passing the Main Street Tax Certainty Act would stop an enormous tax increase currently scheduled to strike small businesses at the end of 2025,” said Brad Close, NFIB President. “The 20% Small Business Deduction is set to expire in 2025, and without it, small businesses will have to limit their plans to grow, invest, and hire. By making the deduction permanent, small business owners will have the tax certainty they need to make business decisions about their future. We are encouraged that this important legislation has been introduced in both the House and the Senate and urge Congress to consider it.”

The 20% Small Business Deduction (Section 199A) allows pass-through small businesses the ability to deduct up to 20% of qualified business income and is scheduled to expire at the end of 2025. The Main Street Tax Certainty Act would make this critical tax deduction permanent for small business owners across the country.

“Pennsylvania small business owners thank Rep. Smucker for re-introducing this critical legislation,” said Greg Moreland, NFIB Pennsylvania State Director. “The Small Business Deduction has been a crucial tax deduction for small business owners in the Commonwealth as it has allowed owners to reinvest in their business and employees. We ask Congress to pass the Main Street Tax Certainty Act and make the Small Business Deduction permanent.”

In a recent NFIB member ballot, 91% said they support permanently extending the expiring provisions of the Tax Cuts and Jobs Act such as the 20% Small Business Deduction. Advocacy by NFIB members was instrumental in securing the 20% Small Business Deduction, and NFIB will continue advocating to have the deduction made permanent. NFIB Pennsylvania member David Cranston testified before the U.S. Senate Finance Committee in 2018 to explain to lawmakers how the Small Business Deduction has benefited his small business. In NFIB’s 2019 tax survey, 81% of small business owners believe the Small Business Deduction is important.

According to NFIB’s 2021 tax survey, nearly half of small business owners (48%) reported the uncertainty of these expiring tax provisions is impacting their current or future business plans. Earlier this year, NFIB Pennsylvania member Warren Hudak and Georgia member Alison Couch testified before Congressional committees sharing their small business tax stories. NFIB Vice President of Federal Government Relations Kevin Kuhlman also recently testified before the U.S. House Budget Committee on how Congress can mitigate economic challenges on small businesses by making the Small Business Deduction permanent. This month, NFIB joined a coalition letter with over 160 other associations to encourage Congress to pass the Main Street Tax Certainty Act.

The National Federation of Independent Business (NFIB), the nation’s leading small business advocacy organization, released a new video featuring small business owners explaining the impact the Credit Card Competition Act would have on their Main Street businesses if passed into law.

The Credit Card Competition Act seeks to ensure competition in the credit card processing market by allowing small businesses the freedom to choose between multiple credit card networks. Without this legislation, businesses everywhere are subjected to ever-rising interchange fees set by large credit card companies in a closed market free from competition. According to a recent NFIB member ballot, 92% of NFIB member small business owners believe that businesses should have the right to choose between multiple credit card processing networks. This legislation would help preserve their freedom of choice by injecting much-needed competition into the credit card processing market, allowing small business owners to choose the option that is best for their business.

Excerpts include:

“I think one thing people forget about all these costs and fees that they think businesses pay is that it’s the consumers who end up paying these fees. At the end of the day, if we can reduce those fees, we can stabilize costs,” said David Henrich, a small business owner from Minnesota.

“The Credit Card Competition Act, I think, would be very beneficial to our business. We just recently started accepting credit cards, and we have noticed that that ‘swipe fee’ has been very expensive for us,” said Renea Jones, a small business owner from Tennessee.

“I don’t have that free choice to go out and choose who I give my money to. It’s already taken away from me on the third of every month before I have the choice to come back and say, ‘Wait a minute, let’s look at this and negotiate a better rate,’” said Jeff Hastings, a small business owner from North Carolina.

The Bureau of Land Management (BLM) has released a proposed oil and gas rule that would affect how fossil fuels are leased and produced on national public lands. The rule would implement the Inflation Reduction Act’s reforms of the oil and gas leasing system.

BLM claims the proposed rule will cut down on speculative leasing in the onshore program so that rather than producing fuels, those lands can instead be managed for other uses like conservation and recreation. Finally, the rule would reform the bonding rates that oil and gas companies must post in order to ensure public lands are cleaned up when companies abandon wells.

The Center for Western Priorities released the following statement from Policy Director Rachael Hamby:

“Congress overhauled the oil and gas leasing system last year. Now it’s up to the Interior Department to make those reforms stick and prevent them from being undermined by future administrations. Today’s draft rule is a major step in that direction. The recent oil and gas lease sale in Wyoming shows that the industry already has more public land under lease than they know what to do with. The least they can do is give taxpayers a fair return when they lock up more acres and profit off publicly-owned resources.”

“It’s imperative that strong bonding reforms make it through the rulemaking process intact. The Interior Department just announced it will spend hundreds of millions of taxpayer dollars cleaning up oil and gas wells abandoned by irresponsible companies. This can never happen again. Drillers must post bonds sufficient to clean up after themselves the next time an oil boom inevitably goes bust.”

Enplanements at Logan International Field in Billings increased YTD as of June, 11.81 percent, and deplanements 16.29 percent.

For the first six months of 2023, a total of 198,165 passengers flew out of Logan Field, compared to 177,231 for the first six months in 2022. Of the seven carriers United Airlines transported the lion’s share with over 58,000 passengers. Other carriers are Allegiant, American, Cape Air, Delta, Frontier and Horizon.

Air freight has declined in 2023 by about 20 percent.

Mail by air also declined. Mail on dropped by .84 percent and mail off declined 29.29 percent.