Montana Viewpoint


Cutting taxes in the name of economic development can cost more than it brings in

September 27, 2003

Just when it seemed that state legislatures had come to their senses about the futility of giving special tax breaks to attract companies bearing jobs, a whole new cure-all of lowering personal income taxes to lure “executives” has begun. It won’t work, either.

Beginning in the late 1980s states began to lower certain property taxes in a suicidal race to the bottom in order to get businesses to locate in their state. It became a bidding war between states, with each state trying to offer the most attractive tax break package. For big business, it became an economic pastime to get tax concessions, whether they needed them or not.

This lunacy culminated in cities and states offering up hundreds of thousands of dollars in tax breaks per job. The most ludicrous example I know of was the town of Caledonia, Minnesota, giving a Dairy Queen franchise $275,000 in tax breaks to create a job that paid $4.50 an hour.

In 1989 Montana lowered business equipment taxes by a cool $19 million a year in an effort to entice a canola oil processing plant to Butte. The plant was never built, and not one job was created, but the legacy of the “Canola Bill” lives on with increased property taxes on every Montana home. Hey, somebody’s gotta pay the bills!

Tax breaks for the now defunct Stream call center in Kalispell and the bankrupt Jore Corporation in Ronan were other futile attempts to improve Montana’s economy by giving away citizens tax dollars.

That myth of economic development is being replaced with another; that executives and entrepreneurs won’t move to a state with high income taxes. This is baloney, too. If it were true, every millionaire in high income tax states like New York, Connecticut, and California would be living in Wyoming and other states without income taxes. However, intelligence is not a requirement for political office, and it will now cost the average taxpayers of Montana and New Mexico hundreds of millions of dollars to find out the obvious.

In the last meeting of the Montana Legislature the top income tax rate was lowered from 11% to 6.9% which will cost over $50 million a year. 70% of this break goes to Montana tax filers making over $77,000 a year, and is paid for by “selective” sales taxes on tobacco, motel rooms, and rental cars.

Now, Montana is under complete Republican control, and this is right in line with their political philosophy, so imagine my consternation when I discovered that New Mexico, under the complete control of Democrats, was doing the same thing. The only positive thing that will come out of these actions is reaffirmation of my belief that ignorance is no respecter of party lines.

The rationale given for the income tax cuts was the same in both states; “our top rate stands out like a sore thumb, and makes us less competitive with other states.” So now some other state’s tax rate will stick out like a sore thumb, and they, too, can join the race to the bottom.

Make no mistake about it; I believe that low taxes are a great thing, providing a government can pay for the services it is expected to provide, but neither of these states could. At the same time they were lowing taxes for the most fortunate, they were cutting services to the least fortunate, even wards of the state who are in hospitals for the mentally disabled.

But here’s the interesting thing to me; even though none of the legislators in Montana or New Mexico had been conferring with their colleagues in the other state, the same legislation was being passed with the same logic. In fact, the folks I talked with in New Mexico were unaware that they were not alone.

Concepts like these did not bloom spontaneously, they were planted in the minds of legislators by organizations who want to restrict the role of government, and who know that you can best do that by restricting the amount of money government has to operate with. They live, I believe, in an idealistic world where the private sector, if left free of government control, will fix all the ills of mankind. If this were true it would be great, but there’s no profit in feeding the poor, or educating the masses, or providing health care for everyone. If there were, private enterprise would already be doing it.

But they’re not, so we as individual Americans expect and require that our country will act on our behalf and perform those compassionate and humanitarian tasks that private enterprise can’t or won’t do. By accepting an incorrect belief that giving private enterprise greater advantage through lowered taxes will cure all ills, we defeat the very principles that we, as Americans, stand for. At the very least we should be able to expect our elected officials to ask for some proof that what they are asked to do in the name of economic development will work.


Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620