Those with the highest incomes in Montana saw a windfall from the $1.5 trillion Republican 2017 Tax Cuts and Jobs Act, according to data from the Montana Department of Revenue.
From tax year 2018, a very small slice of Montana’s population, the top 3.4 percent of income earners, got to keep a combined total of nearly $359 million more in federal income taxes thanks to the law. Those 15,709 people each saved an average of $22,837 in federal income tax.
For the 296 Montana taxpayers who earn over $2 million a year, the savings were even more pronounced. Those highest-income earners combined saw more than $67 million more in their pocketbooks, an average savings each of over $226,000. The total combined income for those 296 people was well over $2 billion, and they paid a combined $532.5 million in taxes. They would have owed nearly $600 million combined in taxes without the law.
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Average tax savings per bracket by Montana taxpayers from the 2017 Tax Cuts and Jobs Act.
Data from 2019 isn't available yet.
The 2017 Tax Cuts and Jobs Act was the most significant overhaul of the tax code in more than three decades. Billed as as an economic growth driver by Republicans but panned by Democrats as increasing both wealth inequality and the federal budget deficit, it narrowly eked through the U.S. Senate on party lines.
There's no consensus on the effects of the bill from tax policy analysts. However, many point out that it did, in fact, disproportionately benefit the wealthy while significantly adding to the nation's debt, as it was not paired with a corresponding spending cut. Others argue that it boosted businesses, household income and promoted job growth.
The law has had wide-ranging consequences, with effects on housing and political power. If you're rich, for example, the savings and incentives make even it more attractive to buy a second home or donate to political campaigns.
Almost all taxpayers got a tax cut, but the amount varies, and the savings disproportionately benefit those in the upper income brackets.
The bottom 96.6 percent of income earners in Montana, 461,263 taxpayers, saved an average of about $1,361 each due to the new law.
Someone who earned less than $7,061 a year (about 47,000 Montana taxpayers), saw an average savings of $154, while someone earning from $155,000 to $217,000 saved an average of $4,859.
Put another way, the top 3.4 percent of Montana income earners reaped $359 million, nearly 41 percent of the total tax savings. Meanwhile, the bottom 96.6 percent of income earners split $524 million, the remaining 59 percent of the total savings.
The Missoulian submitted a public records request for the numbers to the Montana Department of Revenue, which has access to federal income tax data.
Wealth inequality has been steadily rising in the U.S. since the 1980s, according to the Pew Research Center, and the gap in wealth between upper-income families and lower-income families is widening.
A pie chart showing the average tax savings per bracket as a percent total of the whole.
The Tax Cuts and Jobs Act had numerous provisions, some supported by both sides of the political aisle, and simplified the tax code in some ways. One of the most sweeping changes was the reduction of the corporate tax rate by 40 percent.
The law also had incentives that some analysts say were weighted more heavily towards aiding the wealthy in home-buying, including the purchase of second homes.
For example, the new law reduced the Home Mortgage Interest Deduction limit from $1 million to $750,000 for new loans for both first and second homes.
That helped those with high incomes benefit disproportionately in being able to purchase second homes, according to a paper last year from Scott Eastman and Anna Tyger of the Tax Foundation.
In their words: "Research suggests the deduction does not increase homeownership rates. There is, however, evidence that the deduction increases housing costs by increasing demand for housing."
In 2018, less than 4 percent of taxpayers earning less than $50,000 claimed the deduction, they wrote, and those taxpayers received less than 1 percent of the tax expenditure’s overall benefits. Taxpayers making over $200,000 made up 34 percent of claims and took 60 percent of the benefits.
"The benefits of the Home Mortgage Income Deduction go primarily to high-income taxpayers because high-income taxpayers tend to itemize more often, and the value of the HMID increases with the price of a home," they wrote. "While the total value of the HMID went down due to the TCJA, the share of benefits is now more concentrated among high-income taxpayers due to more taxpayers opting for the more generous standard deduction."
Thus, they argue, people who are purchasing homes they don't live in and who aren't taking out large loans now have more of a financial gain compared to those who borrow and live in the homes they buy.
"The TCJA’s reduction in the HMID’s cap increased the effective marginal tax rate on owner-occupied housing, particularly for debt-financed housing," Eastman and Tyger concluded. "These changes disadvantage homeowners who rely on debt to finance their homes and increase the cost of saving in owner-occupied housing."
Distribution of Home Mortgage Interest Deduction claims by income group.
Luxury home sales in the Missoula area have spiked recently, according to the Missoula Organization of Realtors. The MOR started tracking sales of homes priced above $750,000 this year because there have been so many more sales in that range compared to years past.
Brint Wahlberg, a local real estate agent who tracks data pertaining to the local market, told the Missoulian in September that there is no longer a glut of high-priced homes in the Missoula area.
"High dollar homes have dropped into a normal supply range," he said.
Local real estate agent Rebecca Donnelly told the Missoulian in September that out-of-state home buyers are looking mainly in the $750,000-$2 million range.
Demand in homes has outstripped supply for much of the last six years, but has surged in the last few years.
From January through September in 2016, the median home sales price in Missoula County was $252,790, and in the same time period in 2020 it was $340,000, a 34.5 percent increase. The digital real estate company Zillow shows home values have risen 28 percent in Montana since the start of 2016.
The pandemic and work-from-home trends likely contributed heavily to that trend.
Historically low interest rates have also increased demand in home purchases, according to Robert Sonora, an economist with the University of Montana's Bureau of Business and Economic Research.
"That's driving a lot of this stuff," he said. "For the foreseeable future, the (Federal Reserve) is going to keep rates low as long as this COVID thing’s going on and stimulus package is falling through."
Sonora said the advocates of the Tax Cuts and Jobs Act said it was intended to increase investment by firms so they could hire more people.
"But that didn't pan out and that wasn't unexpected at all," he said.
The 2018 impacts of the 2017 Tax Cuts and Jobs Act on Montana taxpayers' federal income tax by income range percentiles.
Sonora points to a study completed by the University of Chicago that found many Fortune 500 companies used the benefits of the TCJA on stock buybacks or overcompensating management, rather than investing in hiring or capital.
"Goldman Sachs ended up doing a study on what firms did with the corporate tax break, and I think they invested 15 cents on the dollar in workers and/or equipment," Sonora said. "Most went to stock buybacks and to shareholders. Which was completely anticipated, which is partly why we had the stock market run up. And there's a disconnect between the financial markets and the real economy, right?"
Luxury home sales in areas like Missoula's Mansion Heights neighborhood have spiked recently.
