Montana's governor is planning to push for a flat 4.7 percent income tax rate during the 2027 legislative session, even as Colorado—a flat tax pioneer since 1987—faces a ballot initiative that would replace its current system with a progressive income tax. A new report from the Independence Institute, published in 2025, warns that Colorado risks abandoning the tax structure that fueled decades of economic growth, while Montana has watched its neighbor's success and now wants to follow the same path.
The two Mountain West states started in similar places, both adopting progressive income taxes during the 1930s Great Depression. Colorado broke away in 1987 by switching to a single 5 percent rate for all income levels, then cut it further through voter-approved measures in 2020 and 2022 to reach today's 4.4 percent. Montana's top marginal rate, by contrast, climbed to 11 percent and stayed there until 2003. According to Federal Reserve data cited in the report, Colorado's economy has remained six to seven times larger than Montana's since the 1990s, and its population grew from four times Montana's size to more than five times during that period. Montana's per capita income ranking dropped from 40th to 47th by 1999, before the state reformed its tax brackets in 2005 and set the top rate at 6.9 percent for income above $13,900, indexed to inflation. That shift brought persistent budget surpluses despite warnings of deficits, and Montana's per capita income ranking has since climbed to 27th, compared to Colorado's 7th.
The report notes that Montana has stayed in the top six overall in the Tax Foundation's State Tax Competitiveness Index since 2020, while Colorado fell from 22nd in 2020 to 33rd in 2026. Montana now even ranks higher than Colorado in individual taxation—12th versus 21st—despite Colorado's competitive head start. The authors point out that Colorado is one of only four states with an alternative minimum tax, which adds complexity that Montana's system no longer carries. Meanwhile, Colorado's Initiative 195 would introduce a progressive income tax without indexing brackets to inflation, "resulting in higher taxes for all Coloradans over time through bracket creep," according to the report.
The report argues that Colorado's push for a progressive tax comes at the worst possible time, with businesses already leaving, migration and population trends softening, and budget volatility rising—all before any tax structure change. Montana's own experience offers a preview: after decades with high progressive rates, the state lagged economically until it simplified and lowered its tax burden, sparking the income and competitiveness gains it enjoys today. The authors explain that Montana lawmakers aren't satisfied with their current two-bracket system and are looking at Colorado's flat tax model—and other Western neighbors—as the benchmark for staying competitive. Colorado's economy is much larger than Montana's, meaning even a smaller rate increase could cause "significant economic damage" compared to Montana's peak 11 percent, the report warns.
People in Montana are watching their neighbors and realizing that joining the flat tax revolution is the way to remain competitive, the report concludes. Colorado, by contrast, faces a choice: learn from Montana's painful decades under high progressive rates, or trade the policy that made it successful for one that Montana is now eager to leave behind. The bottom line is stark—Montana's ready to adopt what worked for Colorado, just as Colorado weighs whether to abandon it.