Montana should join the flat tax revolution

Montana has placed itself on the map as a good place to live and do business. Over the last several years, significant tax and regulatory reforms have been adopted. It is no surprise, then, that Montana ranks among the regional leaders in several economic indicators. This includes a Top 10 ranking in the Tax Foundation’s 2026 State Tax Competitiveness Index.

Over the last decade, the Treasure State has adopted several personal income tax reforms by reducing its numerous graduated tax brackets from seven to two, significantly dropping the top rate from 6.9% to 5.4%, and bringing record tax relief to Montanans.

Despite these efforts, Montana is still surrounded by states with lower income tax rates. This includes Idaho with a flat rate of 5.3% (both personal and corporate), Wyoming and South Dakota with no personal or corporate income tax, and North Dakota with a top graduated personal rate of 2.5%.

States across the country are competing for people and capital with tax reform. For example, there has been a flat tax revolution over the last decade, with 10 states adopting this tax reform during that period. In total, 17 states currently use (or are moving to) a flat income tax rate, including several “blue” states like Illinois (4.95%), Colorado (4.4%), Michigan (4.25%), and Pennsylvania (3.07%).

Montana could continue to improve its economic outlook by building on its impressive income tax reforms by moving to a flat income tax rate.

As noted by Governor Gianforte:

“The reality is, even after our historic tax cuts, we still have the highest income tax rate in the region. Across the country, states are cutting their income tax rates. To stay competitive, we must do the same.”

Why are states moving to a flat tax?

There are four important benefits of moving to a flat income tax structure: Simplicity, economic efficiency, transparency, and protection against tax increases.

By having one flat tax rate, compliance costs are reduced, saving taxpayers time and money. Revenue forecasting is also improved, making it easier for policymakers to estimate how tax rate changes could impact collections. The neutral tax treatment of economic activity also incentivizes investment and work, leading to a growing economy.

Utilizing a flat tax rate also reduces the ability of government officials to impose discriminatory tax policy or pursue efforts to “tax the man behind the tree.”  A tax increase imposed on everyone uniformly is less likely to occur and would be reserved as a true last resort for budgeting. This helps to keep spending and taxes in check.

Another benefit of a flat tax rate is the ability to utilize revenue triggers to provide automatic tax relief. Several states are also using triggers to phase out their income taxes entirely.

Along with moving Montana to a competitive flat income tax rate, attention should also be given to reforming the state’s regionally high corporate income tax. Imposed at 6.75%, the Treasure State corporate tax rate is an outlier compared to neighboring states.

There is no corporate income tax in Wyoming or South Dakota. North Dakota’s rate is 4.31%, and Idaho’s rate is 5.3%.

Although Montana’s overall tax competitiveness ranking is good, its high corporate tax rank is dragging down its performance.

Though it is often assumed that corporate taxes are paid by shareholders, the incidence of the tax is ultimately borne by workers through lower wages and consumers with higher prices. Ideally, Montana’s corporate tax rate should eventually match the new flat personal income tax rate.

Montana has made tremendous progress in improving its economic outlook by consolidating the number of income tax brackets while also reducing the top tax rate to 5.4%. Despite these significant reforms, the Treasure State still has one of the highest regional income tax rates and risks being left behind as more and more states join the flat tax revolution.

The good news is that Governor Gianforte has made moving the state to a flat tax one of his top priorities for the 2027 Legislative Session. Moving Montana to a flat tax would improve the tax code’s simplicity, economic efficiency, and transparency while also protecting against future tax increases.

As noted by national tax experts, reforming graduated income taxes to a flat low rate improves a state’s competitiveness, outlook for economic growth, and is one of the most “valuable tax reforms lawmakers could adopt.”

Now is the time for Flat Fair Montana.