Analysis: Montana cut income tax rates, and revenues more than doubled

For years, opponents of income tax relief have warned that lowering tax rates would reduce state revenues and threaten government services.

Montana's own tax collection data tells a very different story.

Over the past decade, individual income tax collections increased from $1.06 billion in Fiscal Year 2014 to $2.24 billion in Fiscal Year 2024. That's an increase of more than 111 percent.

Corporate income tax collections grew even faster, rising from $147.6 million to $312.3 million over the same period—an increase of nearly 112 percent.

In other words, Montana's two major income tax sources didn't stagnate after lawmakers began reducing individual income tax rates. They more than doubled.

Those numbers should force policymakers to reconsider one of the most common arguments in tax policy debates. The claim that lower tax rates automatically lead to lower tax revenues simply isn't supported by Montana's experience.

Since 2003, lawmakers have repeatedly worked to simplify Montana's tax code and lower income tax rates. Major reforms reduced the number of tax brackets, lowered the top marginal rate, and made the state more competitive with its regional neighbors.

The reforms accelerated in recent years. In 2021, Montana reduced seven income tax brackets to just two. In 2023, the top rate fell to 5.9 percent. During the 2025 legislative session, lawmakers reduced it again to 5.4 percent.

These changes represented a dramatic departure from Montana's tax history.

When the state's income tax was first enacted in 1933, rates ranged from 1 percent to 4 percent. Over subsequent decades, lawmakers steadily increased rates until the top bracket reached 11 percent during the 1980s.

Today, Montana's top income tax rate is less than half of what it was at its peak.

Critics predicted that reducing those rates would starve the state treasury. Instead, income tax collections reached record highs.

Why?

Because tax revenues depend on more than tax rates. They depend on economic growth.

When workers keep more of what they earn, they have greater incentive to work, save, invest, and build businesses. When employers face lower tax burdens, they are more likely to expand operations, hire workers, and invest capital. Those decisions increase economic activity, broaden the tax base, and generate additional revenue.

The result is a larger economy producing more taxable income. Montana's tax collection data reflects that reality.

Individual income tax collections grew by more than 111 percent over the past decade. Corporate income tax collections grew by nearly 112 percent. Both far outpaced population growth during the same period.

This does not mean every tax cut automatically pays for itself. Economic growth is influenced by many factors.

But it does demonstrate that lower tax rates and growing state revenues are not mutually exclusive. In fact, when tax relief encourages investment and economic growth, the opposite can occur.

Montana's recent tax reforms have made the state more competitive, more attractive to investment, and more welcoming to families and entrepreneurs.

There is still work to do.

A flatter, simpler income tax with a lower and more competitive rate would build upon the success Montana has already achieved. It would further strengthen the state's economy while continuing to reward work, investment, and entrepreneurship.

For years, critics warned that tax relief would reduce revenues.

Montana's own numbers tell a different story.

Lawmakers reduced individual income tax rates.

Individual income tax collections increased 111 percent.

Corporate income tax collections increased nearly 112 percent.

The lesson is clear: tax relief can be good for taxpayers, good for economic growth, and good for the state's fiscal health.