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MT revenue analysis: Rich households get big share of 2017 federal tax cuts

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Posted at 11:56 AM, Dec 24, 2020
and last updated 2020-12-24 19:03:13-05

HELENA — The top 1 percent of Montana taxpaying households reaped about 25 percent of the total cuts from the 2017 federal income-tax cuts approved by congressional Republicans, a state Revenue Department of analysis shows.

The analysis, provided to MTN News, estimated that Montana’s 487,000 taxpaying households in 2019 saw an overall reduction in federal taxes that year of $909 million, because of the federal cuts.

The average federal tax reduction per household was $1,866 – but, when the cuts are examined by income bracket, the analysis shows that benefits flowed disproportionately to top income-earners, who pay higher rates on their income and generally pay more taxes.

For example, households earning $400,000 or more – about 5,500 Montana households, or 1.14 percent of the total – paid an estimated $223 million less in federal taxes in 2019, or 24.5 percent of the total tax cut. These households had an average federal income-tax cut of $40,260.

In comparison, households earning $53,000 or less – 60 percent of the total Montana households – got about 20.5 percent of the overall tax reduction, averaging about $800 per household.

All tax brackets benefited from the tax cut, the analysis showed, but the average reduction for the majority of Montana households was in the hundreds of dollars.

The Montana Revenue Department’s analysis is an estimate, based on state tax returns filed by the 487,000 Montana households that paid state income taxes in 2019.

Montanans’ income tax is based on an individual’s federally reported income, which is reported on Montana tax forms. However, the state does not see the details on what taxpayers declare or pay on their federal returns, so its analysis is an estimate of the impacts of the 2017 federal tax cut.

Those who supported the tax cut have argued that it helped the economy and spurred private investment and job creation. Critics have said its greatest impact has been reducing tax liability for the wealthy and corporations.

The Montana Revenue Department analysis showed that effective tax rates dropped for all income earners, under the 2017 tax-cut bill. However, for those earning the most money, the drop in those tax rates led to much higher overall reductions in taxes paid.

The top 10 percent of earners in Montana – those earning more than $132,000 a year – had $483 million in cuts, or 53 percent of the total.

The Revenue Department also broke down the impacts, in greater detail, on the very top echelon of earners in Montana.

For those earning between $1 million and $2 million a year – 730 households – the average reduction in their taxes for 2019 was $45,200. They made up .14 percent of the state’s taxpaying households and got 3.6 percent of the benefits.

And for those earning more than $2 million – 339 households – the average tax reduction was $165,200. They made up just .06 percent of the state’s households and had 6 percent of the benefits of the bill.