While Montana is poised to learn from the flat tax success stories of Colorado and other Western states, the push for a progressive income tax in Colorado threatens the very policies that made the state successful in the first place.
Some History
Colorado and Montana both implemented progressive individual income taxes in the 1930s during the Great Depression.
However, Colorado was one of the first states to join the “flat tax revolution” when it implemented a single flat rate of 5 percent for all incomes in 1987.
Then, through rate cuts at the turn of the century and Independence Institute-led Propositions 116 and 121 in 2020 and 2022, Colorado lowered the income tax to its current rate of 4.4 percent.
Meanwhile, Montana’s highest marginal tax rate peaked at 11 percent and remained in effect until 2003.
The states reaped what they sowed. Colorado’s economy and population boomed relative to Montana.
According to the Federal Reserve Bank of St. Louis (FRED), Colorado’s GDP has remained about six to seven times larger than Montana’s since at least the 1990s, and Colorado’s population has grown from four times to over five times the size of Montana’s in the same period.
After a state-backed defeat of an amendment similar to Colorado’s highly successful Taxpayer’s Bill of Rights (TABOR) in 1994, taxes and spending continued to increase, and Montana fell from 40th to 47th in per capita income by 1999.
A Twist of Fates?
Seeing the writing on the wall by 2005, Montana reformed and consolidated its income tax brackets, setting the top rate at 6.9 percent for income over $13,900, with the rate adjusted for inflation.
Even though there was a chorus of opposing voices who claimed that rate reductions would “blow a hole in the budget” and cause more deficits, Montana quickly experienced surpluses, which have persisted ever since.
Montana’s per capita income ranking has since improved to 27th (Colorado’s is 7th).
Despite Colorado’s competitive head start with its early move to a flat income tax, Montana now actually ranks considerably better in overall tax competitiveness rankings.
Montana has stayed in the top six overall since 2020 in the Tax Foundation’s State Tax Competitiveness Index, while Colorado fell from 22nd in 2020 to 33rd in 2026.
At this point, Montana even ranks higher than Colorado in individual taxation (12th versus 21st).
Despite the strength of Colorado’s flat tax rate, the state is also one of only four that has an alternative minimum tax (AMT), and it ultimately carries more residual complexity than Montana.
Although Montana has made significant recent progress in consolidating its rates to only two and subsequently decreasing the top rate, its lawmakers are not satisfied.
Colorado’s Folly
Montana’s Governor is planning to push for a flat 4.7 percent income tax rate during the 2027 regular session.
People in Montana are looking at their Mountain West neighbors and are realizing that, if they want to stay competitive, now is the time for Montana to join the flat tax revolution.
Even though Colorado shares many of the same neighbors as Montana, some of its politicians apparently do not want to make the state more appealing and instead want to trade the flat tax for a progressive income tax system.
Although top rates would not (yet) reach Montana’s peak rate of 11 percent, Colorado does not need to go as far to cause significant economic damage, since its economy is much larger.
Moreover, while Montana’s brackets adjust for inflation, Initiative 195 would not index them to inflation, resulting in higher taxes for all Coloradans over time through bracket creep.
This push for a progressive income tax comes at a time when the state’s economy is already showing signs of economic strain.
Some businesses are already leaving, migration and population trends are softening, and Colorado’s budget is already volatile—all before implementing a progressive tax.
It would be better for Coloradans to imagine what might happen if the state votes for Initiative 195 than to actually experience its impacts—Montanans have already done that and are now eager to change their approach.
