Senate Republicans said Monday they want to cut capital gains taxes on certain qualifying businesses when they help stimulate the Montana economy.

Senate Taxation Chairman Jeff Essmann, R-Billings, said his yet-to-be introduced bill will use these tax incentives for capital investment to help create jobs:

- Provide a lower capital gains tax rate to new businesses starting or moving to Montana over the next three years. Sixty percent of the employees would have to be based in Montana.

- Give an additional incentive for property fabricated or assembled in Montana to help increase Montana employment. The federal economic stimulus act has provisions to encourage small businesses to buy equipment and create jobs by allowing first-year expensing or faster depreciation.

- Offer a lower capital gains tax the longer that business assets are held in Montana.

Essmann said the tax incentives wouldn't have any immediate fiscal impact because businesses would have to hold their assets for 10 years to qualify for the tax breaks.

"The tax breaks would occur when the business assets are sold in the 10-year period, when the business changes hands," Essmann said. "It could have the impact of a great deal of stimulus without a great deal of fiscal impact."

Current law gives taxpayers a 2 percent tax credit on capital gains income. A tax credit is a dollar-for-dollar reduction of a taxpayer's tax liabilities.

Under this bill, business owners would receive a 5 percent capital gains tax credit. That would lower the top income tax rate from 6.9 percent to 1.9 percent for qualifying businesses owners.

Any business could qualify, but Essmann said it is targeted for small businesses.

Senate Majority Leader Jim Peterson, R-Buffalo, called Essmann's proposed bill another one of the Republican plans to help stimulate the economy.

In response, House Minority Leader Carol Williams, D-Missoula, disagreed with the Republican approach.

"We believe that better, more effective ways to revive Montana's economy, including direct initiatives for job creation, consumer demand, health care, job training," Williams said. "Trickle-down economics doesn't work, as evidenced by the current state of the national economy."

State Bureau Chief Chuck Johnson: 447-4066 or chuck.johnson@lee.net