Montana Cuts Spending and Lowers Taxes

A merica’s economy is showing clear signs of stress. The banking system seems to be in trouble, inflation is still not under control, and a looming congressional standoff over the debt ceiling threatens to take our economy to a cliff edge.

While our leaders in Washington continue to double down on the bad ideas that got us here, the state of Montana is showing how a renewed commitment to fiscal responsibility can help ignite an economic comeback.

Instead of spending more on stimulus, bailouts, and handouts, Montana’s leaders have prioritized reducing the government’s burden on taxpayers. Now, while President Biden proposes tax hikes, Montanans of all incomes are enjoying historic tax breaks.

In 2021, newly elected Montana governor Greg Gianforte promised to hold the line on spending. In response, the legislature delivered a Conservative Montana Budget that put firm limits on new government spending, keeping budget increases below the trend of the state’s population growth plus inflation, all while remaining balanced in accordance with state law.

This wasn’t easy. In Montana the state budget had on average outpaced population growth plus inflation over the last couple of decades, and state legislators had to approve a substantial reduction in the rate of spending growth to meet this target. But it was worth it. By limiting new spending, legislators made room for a $1 billion tax-cut package in 2023 — the largest in state history.

In addition to lowering the state’s top marginal income tax rate from 6.5 percent to 5.9 percent, the latest cuts also reduced the capital-gains tax, tripled the earned-income tax credit for low-income earners, and expanded the business-equipment tax exemption, which has unnecessarily burdened thousands of Montana small businesses for years. And that’s not all. These reforms work in tandem with another tax-relief measure signed by Gianforte in 2021, which will kick in next year and drop tens of thousands of low-income Montanans from the tax rolls completely.

All this means that in the Treasure State, more money stays in the pockets of workers, businesses, and families. So, it should come as no surprise that Montana’s economy is growing strong and attracting new residents fleeing high-tax states like California.

Perhaps legislators in Washington should take notes. For decades, Democrats and Republicans alike have given lip service to fiscal responsibility while going on a historic spending spree. Today, the gross national debt is now a staggering $31 trillion, or 120 percent of U.S. GDP — a level of debt that hasn’t been seen since World War II. Things have gotten so out of hand that interest on the national debt has become one of the federal government’s biggest expenses.

But still, there doesn’t seem to be any sign of fiscal sanity on the horizon. Despite being pitched as “deficit reduction,” President Biden’s new budget is nothing more than a continuation of the reckless spending status quo. If passed, the proposal would usher in trillions more in additional spending, offset only by one of the largest tax hikes in American history. Even if it were to reduce the deficit in the short run, this sort of tax-and-spend plan would do so at the cost of undermining the economic vitality needed to help restore America’s finances over the long run.

By comparison, if the federal government had adopted Montana’s approach for the last 20 years, placing firm limits on the growth of new spending to correspond with the nation’s population growth plus inflation, economist Vance Ginn estimates that the U.S. would have added only $500 billion to the national debt. In this scenario, the current state of the nation would look drastically different. Debt-fueled inflation would likely be taking a smaller bite out of Americans’ checkbooks. Economic growth would be accelerating over the long term and reducing pressure to raise taxes. And if Montana’s experience with conservative budgeting is any example, Americans might be debating tax cuts in 2023 rather than preparing for yet another tax hike.

In short, our leaders in Washington can learn a lot from Montana’s success. Indeed, Americans of all stripes would be better off if the federal government adopted Montana’s conservative budgeting approach and committed to the kind of fiscal responsibility needed to ignite an economic comeback.