One can hardly blame Montanans for being confused by the ongoing debate over tax policy in the state’s Capitol. On one side we have the Republican “Handshake with Montana” and on the other we have Gov. Schweitzer’s “Square Deal” plan. Quaint and largely inaccurate political labels aside, most people want to know what it will mean to their pocketbooks when all the sound and fury subsides.
To understand why tax policy is such a big issue this time around, one need only look to the state’s billion-dollar “surplus.” Due largely to increases in personal and corporate income tax revenues and oil and gas production, this staggering sum sets the stage for the parties to fight over how it gets used.
Republican tax policy has been pretty consistent and is fairly easy to understand. As we have heard from numerous top-level Republicans, their foundational statement is that “the money is yours and you know how to spend it better than the government.” Thus, if the government has collected more than it needs, it should give it back to the taxpayers—which former Gov. Marc Racicot did with small rebates back in the ’90s.
The Rs also believe that what’s good for business is good for the state, and have reduced business taxes with a vengeance. Although Republicans now claim the billion-dollar windfall is a direct result of these tax breaks firing up the economy, in actuality the breaks simply shifted the tax burden from businesses to homeowners.
Republicans have also tried to enact a state sales tax in Montana for more than 30 years. Their rationale is that those with the most money, who buy the most stuff, will wind up carrying most of the tax burden. Democrats have historically opposed the sales tax as regressive—since the poor pay the same rate as the wealthy—and Montanans have turned it down repeatedly at the polls.
And finally, the Republicans say their plan, which Senate Minority Leader Cory Stapleton describes as “superior” to Schweitzer’s, will produce “permanent” across-the-board property-tax relief. Although Schweitzer has correctly pointed out that no legislature can bind future legislatures, and so there can be no such thing as a “permanent” property tax cut, recent polls show significant public support for the Republican-backed goal.
For the Democrats’ part, the tax proposal set out in Gov. Schweitzer’s plan is a little more complicated, if not downright schizophrenic. Schweitzer says neglect by former Republican administrations and legislative sessions has created “potholes” that need to be addressed. In this regard, he points to the shortfall in the state’s public employees pension system, a court-ordered increase in education funding, and significant funding for new correctional facilities. Those three items together account for more than $300 million—about a third—of the billion-dollar windfall.
Another $100 million would be used to mimic Republicans by giving it back to taxpayers. Schweitzer’s proposed $400 one-time rebate would go to resident Montana homeowners—but not businesses, corporations or nonresidents. Republicans take issue with this plan because they say the money isn’t going back proportionally to those who paid it. In the end, a homeowner who gets $400 won’t much care where it came from. For most of us, it won’t be around long enough to worry about.
There is, however, one part of the Dem’s tax plan likely to cause them considerable trouble—maybe even electoral catastrophe. Just this week Schweitzer announced he is now supporting a Local Option Sales Tax, which, perhaps prophetically for the Democrats, can be reduced to the acronym LOST.
Proponents of the measure, mostly city and county governments, point to the success of the state’s resort tax in places like Whitefish and West Yellowstone, and claim similar locally enacted taxes would allow municipal and county governments access to more revenue. While LOST would undoubtedly produce more revenue—that’s the purpose of new taxes, after all—this argument is disingenuous at best.
Montana’s resort tax was specifically enacted by the Legislature years ago to help tourist towns fund infrastructure needs created by large numbers of visitors. Slapping the tax on virtually everything tourists buy definitely produces revenue in those towns and takes some of the burden off residents and business owners. But while it works in Whitefish and West Yellowstone, such a tax, if enacted in Montana’s other cities and towns, would likely end up being paid mostly by residents rather than tourists—and it would be a new tax. And that would be a mistake.
Two years ago, Schweitzer was lauded in this column for his fiscally conservative budget and his “no new taxes” pledge—both of which countered the politically effective Republican labeling of “tax and spend Democrats.” This year, however, Schweitzer is proposing hundreds of millions in new state spending, a massive increase of hundreds of new state employees, and the local option sales tax, which will be viewed as a new and regressive tax on those who pay it, no matter what political rhetoric is used in its defense.
While it’s far too early in the session to foretell the final outcome of the tax wars, one thing seems certain: Schweitzer’s big-spending budget, coupled with his newly announced support for a local option sales tax, has great potential to dump the Democrats right back into the hands of their political opponents. Republicans will jump to resurrect the “tax and spend Democrats” image just in time for the 2008 elections—and you can bet the graphs and charts will tell the story plainly.
Given Schweitzer’s prolific spending and his recent endorsement of the local option sales tax, it’s tough to see how either he or his party would dodge that deadly political bullet. Democratic legislators would do well to recall the lessons of the past—and look before they leap.
Former lobbyist George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at email@example.com.