If federal deductibility is capped, even if there is an income tax reduction, won people still pay more tax?
The vast majority of Montanans will actually pay less in taxes, even when the cap on federal deductibility is considered. Under the specific proposal recommended by the Governor’s Advisory Council, only 3% of taxpayers would pay more tax. Also, where those taxpayers experiencing a large tax increase in the year of the study were examined over a three-year period, it was found that for the vast majority of these taxpayers the increase was of a one-time nature. This was generally because in the initial year reviewed, these taxpayers had a one-time bunching of federal income tax payments. We encourage all taxpayers to review the rate table and capital gains credit recommended by the Council and calculate their potential taxes in 2006 to see if they would be better off under the proposal. Remember to consider changes in federal tax law that will occur through 2006, such as the decrease in federal tax rates which will cause federal taxes paid to go down, reducing federal deductibility, and
