Testimony Before the Montana Senate Committee on Taxation on Senate Bill 323 Regarding Revising Individual Income Tax Rates and Earned Income Credit
Heartland Impact
March 28, 2025
Chairman Hertz, and Members of the Committee:
Thank you for holding a hearing on Senate Bill 323, legislation that would revise Montana’s current income tax laws.
My name is Samantha Vick, and I am the Senior Government Relations Manager at Heartland Impact.
Heartland Impact is the advocacy and outreach arm of The Heartland Institute. Both organizations are independent, national, nonprofit organizations working to discover, develop, and promote free-market solutions to social and economic problems. Heartland Impact specializes in providing state lawmakers the policy and advocacy resources to advance free-market policies towards broad-based economic prosperity.
For the last several years, every state in the nation has grappled with the many economic challenges that recent years have brought. Inflation continues to make it difficult for middle-class Americans to pay their bills, interest rates have risen, fallen, and risen again, gas and energy prices are higher than before, and geopolitical issues around the globe continue to strangle the supply chain.
In times such as these, many elected officials are forced to turn their sights toward state revenue and budgets.
The aforementioned economic concerns have emboldened many legislatures and governors to pursue harmful economic policies, such as increases in income taxes and minimum wage hikes. Senate Bill 323 attempts to buck this trend by reducing the top marginal individual income tax rate and increasing the earned income tax credit from ten percent to fifteen percent.
This is beneficial for constituents and small business owners in the Treasure State as high state income taxes in states like Illinois and California push productive residents to move to other states with more favorable tax codes and take their income, capital, and families with them.
Examples of this phenomenon have occurred in New York and other states with excessive income tax burdens. Many of these states have, and continue to, experience population exoduses because of the fallout surrounding poor political leadership and fiscal policy.
According to the U.S. Census Bureau’s net domestic migration figures from 2024, states with burdensome income taxes saw the largest population outflows between July 2023 and July 2024. The Census data shows California losing 239,575 residents, New York losing 120,917 residents, and Illinois losing 56,235 residents.
While states with zero income tax had the highest net domestic migration increase (inflow) between July 2023 and July 2024. The Census data shows Texas gaining 85,267 residents, Florida gaining 64,017 residents, and Tennessee gaining 48,476 residents.
Additionally, the rosy revenue projections from higher tax rates have fallen short in states where they have been imposed. Relying on a steep income tax rate with a small base is historically unreliable and can lead to large budget deficits. It is evident that lawmakers in the Montana Senate understand this economic false promise by introducing SB 323.
Personal income and corporate tax hikes are generally considered to be the most destructive economic policies because they deter production, stifle innovation, and disincentivize investment. Recent studies show states with no income tax or with low-income tax rates perform better economically while facilitating population growth and job creation.
On the other hand, high income taxes discourage economic development by dissuading high-income earners and new capital from moving into a state. A study by the Americans for Tax Reform Foundation found, “Each positive 1 percentage point tax burden differential between states decreases the ratio of income migration into the high-tax state by 6.78 percent in a given year.”
States with high tax rates grow more slowly than states with lower taxes, after considering for other control factors. A ranking of all states by their overall tax burden ultimately shows that real personal income grows more on average in the states with the lowest state and local taxes as a percentage of income.
Keeping all of this in mind, I implore the members of this committee to consider all the positive economic outcomes associated with the reduction of personal income tax rates and to support Senate Bill 323.
Thank you for your time and consideration today.
