Billion-dollar tax rebate, spending package passes budget committee

Republicans on a key legislative committee voted Friday to advance a six-bill package totalling more than a billion dollars in one-time spending, signaling that different factions of Republican lawmakers and Republican Gov. Greg Gianforte have reached an agreement about how to allocate a major chunk of the state’s estimated $2.5 billion surplus toward tax rebates and other priorities.

As passed by the House Appropriations Committee late Friday afternoon, the bills would provide taxpayers with rebates of up to $1,250 on their 2021 state income taxes and homeowners with property tax rebates of up to $500 in 2022 and 2023. They would also cut the business equipment tax, cut capital gains taxes, pay down state debt and allocate $100 million to a highway construction fund.

The bills now face votes on the House floor and review by the state Senate. Republicans on the House Appropriations Committee, however, inserted poison pill amendments in each of the measures that would slash their effect in half if any of the companion bills fail, whether because they’re voted down en route to the governor’s desk or vetoed.

The appropriations committee also voted separately Friday to advance the state employee pay plan, House Bill 13, and shot down a Democrat-backed bill, House Bill 258, that would have spent $109 million to give one-time rebates to both lower-income homeowners and renters. The pay plan, which was negotiated between the governor and public employee unions, includes $1.50-an-hour or 4% across-the-board raises for state and Montana University System employees each of the next two years and passed on a bipartisan 17-6 vote. The Democratic rebate bill failed on a party-line vote with Republican opposition.

Gianforte and many Republicans have argued that moving quickly to allocate surplus dollars to rebates will ease the financial pain inflation has caused many Montana families. The governor’s proposed budget calls for property tax rebates and a long-term income tax cut, but didn’t include money for one-time income tax rebates, which have been a priority for some legislative Republicans. 

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Rep. Bill Mercer, R-Billings, said the income tax rebates advanced Friday will benefit 460,000 taxpayers, some of whom will be refunded the entire amount they paid in state income taxes last year. Additionally, he said, this first round of spending leaves plenty of surplus to allocate elsewhere.

“There’s a very strong case for this,” Mercer said.

Democrats and one Republican on the committee voiced concern that the Legislature is advancing the rebate measures now, early in this year’s legislative session, rather than waiting until later in the session when lawmakers have a clearer picture of how much they need to spend on other priorities, such as housing affordability efforts or throwing a lifeline to cash-strapped nursing homes.

“I’m afraid what will happen is that we get to the end of the session and we find that we have a big unmet need, and all of a sudden we’re scrambling for cash,” said Rep. John Fitzpatrick, R-Anaconda, before voting with his fellow Republicans.

Rep. Mary Caferro, D-Helena, argued the state could be doing more to help Montanans like senior citizens who’ve been displaced by nursing home closures, or people who are doing unpaid work caring for family members with Alzheimer’s and as such won’t benefit from an income tax refund.

“I would like us to think more broadly of who we represent than ‘the taxpayer’,” Caferro said.

The six bills in the package are as follows. All advanced from the committee Friday on party-line or near-party-line votes:

• House Bill 222, which would put about $284 million into property tax rebates. In its current form it would provide rebates of up to $500 per homeowner for taxes paid in 2022 and 2023. The Montana Department of Revenue estimates that about 292,000 households would be eligible each year.
• House Bill 192, as amended Friday, would put $480 million into income tax rebates. Individual taxpayers would qualify for up to $1,250 in rebates on their 2021 state income tax bill.
• House Bill 212, which would raise the exemption threshold for the state’s business equipment tax from $300,000 of business property to $1 million. It includes a provision to backfill local government revenues and would cost the state about $7 million a year going forward.
• House Bill 221, which would change how the state defines its capital gains rate and reduce the rates. It would set the state’s long-term capital gains tax rate at 3% for the first $41,000 of applicable capital gains income and at 4.1% for income beyond that.
• House Bill 267, which would put $100 million into a highway construction fund. Supporters have said the money would make it possible for the state to access additional federal transportation matching funds. Unlike the other bills in the package, HB 267 advanced with unanimous support from the committee.
• House Bill 251, which puts $150 million into paying down existing state debt.